Chloe Walker

If you employ people in the UK, there are a few ways you can reward them in addition to paying wages or a salary. One of the most flexible options is to offer benefits in kind (BIKs). 

This guide aims to clarify what BIKs are, their purpose, how they are taxed, and the reporting requirements.

What is a benefit in kind?

A benefit in kind is a non-cash benefit provided to employees that has monetary value. These perks are offered in addition to, or in place of, traditional salary payments.

Examples of benefits in kind

The most common examples of a taxable BIKs include the following:

• Private healthcare 
• Travel expenses 
• Childcare vouchers 
• Company cars 
• Gym membership 
• Cycle to work schemes 
• Accommodation expenses 

What is the purpose of offering benefits in kind?

In simple terms, you’re offering your employees valuable perks in addition to their salary.

There are several reasons why you might choose to include certain BIKs in your overall compensation strategy, such as: 

• Attraction and retention: competitive benefits can attract top talent and help retain existing employees.
• Employee satisfaction: perks can enhance job satisfaction and morale.
• Tax efficiency: some BIKs can be more tax-efficient than equivalent salary increases.
• Employee wellbeing: benefits like flexible working arrangements or organised yoga classes can improve employees’ work-life balance, contributing to their overall well-being.

Paying Class 1a NICs on your benefits in kind

As an employer, you are responsible for paying Class 1A National Insurance Contributions (NICs) on most benefits you provide to your employees.  

These contributions are covered by you and are not deducted from your employees’ salaries. 

You must pay Class 1A NICs for:
 

• Directors and certain senior employees.  
• Regular employees.  
• Family members or household members of the above, who also receive benefits.
   

And certain conditions must be met for Class 1A NICs to apply:
 

• The benefit must not already incur a Class 1 NICs liability.  
• The benefit must be related to employment.  
• The benefit must be subject to Income Tax. 
   

It’s also worth noting that there is an exemption when it comes to “smaller” benefits (costing £50 or less) for things like taking an employee out to celebrate their birthday. 

What benefits are subject to Class 1A NICs?

Common taxable benefits that attract Class 1A National Insurance include:
 

• Private medical insurance.   
• Living accommodation.  
• Company cars.   
• Termination awards exceeding the £30,000 threshold that have not already been subject to Class 1 NICs deductions.  
• Beneficial loans.  
   

When don’t you have to pay Class 1A NICs? 

You won’t have to pay Class 1A NICs if:  

• Your employee receives a non-taxable benefit in kind. 
• The beneficiary does not meet the criteria for “employed earner”. 
• The benefit is included in a PAYE settlement agreement. 

How to report benefits in kind

First, let’s take a look at P11D and P11D(b) forms. We’ll briefly go over what they are, why you need them and what’s their main difference. 

What’s a P11D?

A P11D form is used to report BIKs (such as company cars or health insurance) and expenses provided to your employees on top of their regular wages.  
 
P11Ds are essential as they ensure these benefits are properly recorded and taxed, fulfilling legal obligations and ensuring fair tax contributions. 

What’s a P11D(b)?

A P11D(b) form is a declaration that specifies the total Class 1A National Insurance contributions owed on all benefits you provide to your employees. 

What’s the difference between a P11D and a P11D(b)?

While both forms involve reporting benefits and expenses, the P11D focuses on detailing individual benefits provided to your employees, while the P11D(b) declares your overall liability for National Insurance Contributions (NICs) on those benefits.  

 

To ensure compliance with HMRC, you must report benefits in kind annually. Here’s your step-by-step guide outlining the process:
 

When submitting P11Ds:

1. Identify the benefits: determine all BIKs provided to employees during the tax year. 
2. Calculate the value: assess the taxable value of each BIK. 
3. Complete the P11D Forms: Fill out a P11D form for each employee receiving BIKs, detailing each benefit and its value. 
4. Distribute P11Ds: provide copies to employees by 6 July following the end of the tax year.
    

When submitting P11D(b)s:

1. Complete the P11D(b) form: this form summarises the total value of all BIKs provided to employees and calculates the Class 1A NICs due.
2. Submit to HMRC: ensure the P11D(b) is submitted to HMRC by 6 July following the end of the tax year.
3. Pay Class 1A NICs: payment for the Class 1A NICs must be made by 22 July (19 July if paying by cheque).
    

Payrolling benefits in kind: current status and April 2026 changes

As it stands, when it comes to benefits in kind, you have two choices:

1. You can stick with the traditional approach of submitting P11D forms to report employee benefits for tax purposes (if they aren’t processed via payroll). 
2. You can opt to register for payrolling benefits, which means you process employee benefits as part of your usual payroll processing, allowing for the real-time taxation of benefits through PAYE. 

What’s going to change from April 2026?

Starting from April 2026, all BIKs that you provide (except for loans and living accommodation) will have to be reported and taxed through payroll. You must ensure that your current payroll process will be able to handle this new development and take actions to either upgrade or replace your software if necessary. 

Are P11Ds giving you a headache? 

If you’re looking to quickly and efficiently manage all your employees’ taxable benefits book a personalised demo today with our sister company Cintra.  

 

On January 16, 2024, the British government announced a significant change: starting from April 2026, the payrolling of benefits-in-kind will become mandatory. This initiative aims to reduce administrative burdens by fully digitalising the reporting of all employment benefits.

If you haven’t yet embraced payrolling benefits, now is the perfect time to get acquainted with the process. It’s essential to understand the pros and cons, as well as how this shift might impact your business’s finances.

Our blog provides comprehensive guidance on how to register for payrolling benefits: from identifying which types of benefits you can payroll to understanding how to report them and make payments to HMRC.

We’ve got all the information you need to navigate this transition smoothly.

Let’s get started. 

What are payrolling benefits?

Payrolling benefits is a method where the taxable value of benefits you provide to your employees is included in their PAYE calculation. This means that income tax on these benefits is paid at source and spread out over the tax year.

What benefits can you payroll?

These are some of the benefits you can payroll:

• Health insurance 

• Gym memberships 

• Company cars 

• Childcare vouchers or subsidies 

• Mobile phone allowances 

• Private medical insurance 

• Travel expenses 

• Meals provided by the employer

What benefits can you not payroll?

• Living accommodation 

• Loans 

How to register for payrolling benefits 

Registering for payrolling benefits is pretty simple. Here’s what you need to do: 

First, you need to register with HMRC via the payrolling employees taxable benefits and expenses online service, (this must be done before the start of the tax year). 

When registering, you’ll select the benefits to include in payroll. It’s important to note that all employees receiving benefits will have their tax codes adjusted unless you opt out specific employees using the online service.

Keep in mind, this option is available until April 2026. 

And if you miss the deadline to register for payrolling benefits

If you don’t register for payrolling benefits by April 5th, you’ll have to wait until the next tax year to include benefits in your payroll. 

How to notify your employees 

Once you’ve registered to payroll benefits, you need to inform your employees about the process and its impact on them.  
 
You need to notify them by 1 June after the end of each tax year via email, letter, or payslip.  
 
Your notification should also assure them that they won’t be taxed twice because you registered their benefits with HMRC before the new tax year. 

What additional information should you include in your written notification?

To ensure all employees are well informed, your written notification should include:

• Detailed information about all payrolled benefits, including descriptions, values, and cash equivalents. 

• Confirmation of PAYE tax deductions. 

• Amounts payrolled for optional remuneration. 

• Details of any benefits not payrolled.

This will provide transparency and help your employees understand their taxable benefits and financial situation better. 

What else do your employees need to know?

You need to tell your employees that during the first year, their tax codes will be modified to exclude benefits in kind adjustments. 
 
Each month, the adjusted amount will be processed through payroll, and they will be taxed accordingly. 
 
At the end of the year, you will provide them with a statement detailing the taxable benefits they received throughout the year and the nature of those benefits.

What about if you have new employees

For new employees with payrolled benefits, you need to explain the taxation process.

Tell them that:

• Their tax code may be adjusted for benefits from previous jobs, but new benefits won’t be included. 

• Any underpaid tax through their current tax code will still be collected. 

How to cancel your registration

Your registration will remain active unless you choose to cancel it.

To do so, you must notify HMRC before the start of the tax year using the online service for payrolling employees’ taxable benefits and expenses.

If the tax year has already started when you change your mind, you must wait until the end of the tax year before you stop payrolling. 

FAQs

Where can I access more information about the latest developments in mandatory payrolling?

To stay updated on mandatory payrolling developments and requirements, you can read the Employer Bulletins from HMRC.  
 
These bulletins provide important updates, guidance, and changes related to payrolling benefits, keeping you informed about any new developments or requirements. 

Is your current payroll process up to scratch?

If you are looking for a team of experienced payroll experts that can quickly and efficiently manage all your employees’ taxable benefits. Book a personalised demo with our sister-company Cintra.

In April 2016, HM Revenue and Customs (HMRC) implemented a significant change in the way benefits in kind (BIK) are managed for employers in the UK. This new system, aptly named “payrolling benefits in kind,” revolutionised the approach to reporting and taxing non-cash perks provided to employees. 

In early 2024, the British Government unveiled plans to make the payrolling of benefits in kind mandatory starting from April 2026. We’ll get into the details of this announcement later on.

So, if you provide non-cash benefits to your employees and want an overview of payrolling benefits in kind, you’ve come to the right place. 

 What are benefits in kind?

Benefits in kind encompass a wide range of perks that you may offer to your employees, including company cars, private healthcare, gym memberships, and even the use of a mobile phone.  
 
Essentially, if you provide something of value to your staff that isn’t included in their salary, it likely falls into this category.  
 
Some common examples of BIKs include company cars, private medical insurance, and gym memberships. 

What are your current options when it comes to BIKs? 

When it comes to benefits in kind you have a couple of options: 

1. You can continue using the traditional method of submitting P11D forms to report employee benefits for tax purposes, if they aren’t included in payroll (until April 2026).
2. You can register for payrolling benefits. This allows you to handle employee benefits through your regular payroll process, enabling real-time taxation of benefits via PAYE. 

What are payrolling benefits?

Payrolling benefits in kind means including the estimated value of employee benefits directly in their regular payroll, instead of reporting them separately to HMRC on the annual P11D form.  
 
This simplifies tax deductions, as Income Tax contributions for the benefits are deducted along with regular taxes.

The benefits of payrolling benefits in kind 

Opting to payroll benefits in kind offers several advantages such as:

• Simplified admin: if your payroll software is capable of processing benefits in kind, you can say goodbye to the hassle of completing P11D forms and the associated deadlines.

• Improved accuracy: by reporting benefits in kind in real time, you minimise the risk of errors and discrepancies in your tax calculations.

• Enhancing the employee experience: payrolling benefits in kind allows you to provide your employees with a clear and transparent view of their total remuneration package. By integrating these benefits directly into the payroll, employees can easily see and understand the full value of their compensation. 

 What’s changing in 2026? 

From April 2026, all benefits in kind (except for loans and living accommodation) must be reported and taxed through payroll. Which means that you’ll no longer be able to process BIKs through P11Ds. 
 
You need to make sure that your payroll system can handle this change and upgrade or replace your software if need be. 

How to register for payrolling benefits? 

To register for payrolling benefits, use HMRC’s online service to manage your employees’ taxable benefits and expenses before the tax year begins. During registration, select the benefits you wish to integrate into payroll. Keep in mind that unless you use the online service to exclude specific employees, all benefiting employees will have their tax codes adjusted.

If you miss the 5th of April deadline to register for payrolling benefits, you’ll have to wait until the next tax year to include benefits in your payroll. 

The Government hasn’t set a deadline for compliance with the legislation change coming in April 2026. However, they have said more updates will be released throughout the year. 

What happens next?

You have a responsibility to communicate with your employees about the implications of payrolling benefits. This includes explaining how their pay will be adjusted, how tax deductions will be managed, and the impact on their tax codes.

Additionally, you must provide annual statements detailing the benefits received by each employee. 

Benefits that are not included in payrolling must continue to be reported using P11D forms as per current procedures. 

How to notify your employees

You must notify your employees by 1 June after the end of each tax year.

You can do this via:

• Email 
• Letter 
• Payslip 

What happens if you want to cancel your registration?

To cancel your registration for payrolling benefits, notify HMRC via their online service before the tax year begins. If you decide to cancel after the tax year has started, you’ll need to wait until the year-end to cease payrolling (until the law changes in April 2026). 

Where can I get extra information to help me prepare for April 2026? 

To keep abreast of mandatory payrolling updates and requirements, you can refer to HMRC’s Employer Bulletins.  
 
These bulletins offer crucial updates, guidance, and information on changes related to payrolling benefits, helping you remain informed about any new developments or requirements. 

Is your current payroll process up to scratch?

If you are looking for a team of experienced payroll experts that can quickly and efficiently manage all your employees’ taxable benefits. Book a personalised demo with our sister-company Cintra.

Cash flow is the lifeblood of any organisation, and it can make or break a company.

However, increasing cash flow can be a challenging task, especially if you have limited resources. 

But don’t worry, you’re in safe hands. We’ve outlined the top 8 ways on how to improve cashflow, regardless of the size of your business. 

8 ways to improve cash flow

1. Do a deep dive into your expenditure

First things first, in order to improve cash flow and plan for the future of your company you need to know exactly how much money you’ve got coming into the business vs. how much you’re spending. 

Start by looking at your income:

Make a list of all your income streams from the previous year in order to detect peaks and seasonal trends (i.e. a boost around the holiday season). This will give you a better understanding of your customers’ spending patterns and which areas of your business are thriving.

Then look at your expenses:

Just like for your income, make a list of all the things you are spending money on such as: employee salaries; office rent; travel and accommodation for the sales team.

Now, for some of these expenses, like employee wages, there’s no wiggle room. But having a clearer picture of all your expenses will help determine where you can cut costs or look for more competitive deals.
 

Finally, compare the two: 

If you find that there are periods during the year when your expenses exceed your income, you can start to question why this is happening. 

2. Increase your prices

It might sound like something you should discuss with your senior management team first (and it definitely is). But even a slight increase to your prices, combined with a small reduction to your costs can go a long way. 
 
Ask yourself: would your clients care? Well, yes, they probably would care if they were told they had to pay more money. But would they care if prices suddenly went up by one or two percent? Probably not.

3. Send out your invoices ASAP

It’s a no brainer really, sending invoices out immediately helps expedite the payment process by encouraging clients to settle their debts promptly.

Make sure your invoices include:

• Clear terms and conditions. 
• The due date in bold at the top and on the payment slip. 
• Instructions for accepted payment methods. 

By immediately sending out accurate, and easy to read invoices, you reduce the risk of late payments and improve cash flow for your business. 

4. Entice your clients to pay sooner

Everyone loves an incentive, and this one’s a win/win for both you and your clients: Offer discounts for early payment. 

Incentivising customers to pay sooner serves multiple benefits. It helps speed up cash flow, providing timely access to funds for both operations and growth. Additionally, it contributes to strengthening your business’s financial position. 

5. Concentrate on building customer loyalty

By focusing on building customer loyalty you can increase retention rates.  
 
You can also ensure more repeat business, maintain a steady cash flow, and turn loyal customers into brand advocates who attract new business. 

6. Invest in your company 

Investing in your own business is crucial for boosting skills, productivity, and overall promotion, which directly impacts cash flow.  
 
While there is an initial cost involved, such investments lead to streamlined operations and improved efficiency. Whether it’s upgrading skills, optimising workflows, or enhancing marketing strategies, the aim is to reduce costs and increase profits.  

7. Improve your inventory

You can increase cash flow by improving your inventory through regular checks to identify “slow-moving items”. 
 
By selling these items at a discount – or discontinuing them entirely – you free up cash tied in inventory and prevent it from jeopardising your cash flow. 

8. Get rid of wasted expenses

Start by asking your employees for input and conduct audits to identify unnecessary costs.  
 
By identifying and cutting out these expenses, you’ll save money that can be redirected towards more productive areas of your business. This will ultimately improve cash flow.

Find more ways to improve cash flow with Capture Expense

We can help reduce your spend up to 44% by saving on costs; improving your spending habits and reducing your risk of expense fraud. 
 
Book a personalised demo today to see Capture Expense in action. 

FAQs

Why is it important to improve cash flow?

By improving your cash flow, you can ensure that your business is here to stay.

You’ll be able to: 

• Invest in new business ventures. 
• Hire more employees.  
• Plan for the future. 
• Meet payroll. 
• And more.

Are there different types of cash flow?

Yes, there are the three primary classifications of cash flow: 

• Cash flow from operations (CFO) 
• Cash flow from investing (CFI) 
• Cash flow from financing (CFF)

These will all appear on the cash flow statement on your company’s financial statements. 

Management accounts offer a window into your business’s financial status, aiding senior management in decision-making and implementation.

This practice holds significant value for all organisations—so regardless of your business size or industry, it facilitates comprehensive insights into past, present, and future financial standing across your entire business.

This article will provide you with an overview of how to prepare management accounts. 

First things first, exactly what are management accounts?

Management accounts, typically generated monthly or quarterly, provide a detailed overview of your company’s financial health. They include key components such as: 

• A balance sheet. 
• A cash flow statement. 
• A brief report. 
• A profit and loss account.

With accurate management reports, you can spot current business trends, address issues regularly, and track your business’s evolution.  

Although they are not a legal necessity and don’t need to be filed with HMRC, they will provide you with greater financial management than ever before and help your company expand.  

Why are management accounts important?

For any business aiming to grow and succeed, management accounts are essential.  
 
By keeping track of your income and spending regularly, you’ll gain valuable insights into your financial health and potential for growth.  
 
Continuous monitoring allows you to make informed decisions and adjust your strategies whenever necessary.  
 
Management accounts go beyond just looking at your bank balance – they take into account factors like upcoming expenses, revenue streams, and market conditions, giving you a full picture of your company’s finances.  
 
Quickly spotting sales trends helps you plan better and seize expansion opportunities, while understanding your profitability margins and trends enables you to make strategic decisions aimed at boosting your net profit.  
 
In short, management accounts provide you with the tools and information you need to thrive and succeed in today’s competitive business world.

How to prepare management accounts

Management accounts are most useful when they contain pertinent facts tailored to your business and are presented in an accessible format for colleagues throughout the company.

Here’s your step-by-step instructions on how to prepare management accounts: 

1. Gather data 

The cornerstone of management accounting rests on the quality and depth of your collected data. Without precise and pertinent data, any subsequent analysis and insights will be distorted.

You should consider:

Source identification: Determine your primary data sources, which may include accounting software, CRM systems, sales platforms, or manual records. Knowing where to extract data ensures crucial information isn’t overlooked.

Time period selection: Decide on the timeframe for which you’re preparing the management accounts. Whether it’s monthly, quarterly or annually, this will dictate the range of data you need to collect.

Data segregation: Categorise your data into sections. For financial data, this could mean segregating revenue, expenses, assets and liabilities. For operational data, segregate sales, production, inventory and customer feedback.

Automation tools: Explore tools and software for automating data gathering, saving time and reducing human error. Integrating different systems ensures seamless data flow and accuracy.

Data validation: Validate the gathered data for any anomalies, such as high expenses in a month or sudden sales spikes, to identify errors that need correction. 

2. Ensure accuracy

Ensuring data accuracy is essential. Inaccurate data can result in misguided decisions, potentially harming your business.

To ensure data accuracy you should employ: 

Cross-verification: Always verify the data collected by comparing it with external sources. For example, ensure that the bank balance in your accounting system matches actual bank statements. 

Reconciliation: Regularly reconcile accounts to identify and resolve any discrepancies. This includes verifying balances with HMRC, suppliers, and other stakeholders.

Audit trails: Maintain clear audit trails to ensure accuracy and trace any discrepancies back to their source. 

3. Produce financial statements

Financial statements form the foundation of management accounts, offering a comprehensive view of your company’s financial well-being.

You should draft a: 

Profit and loss report: This statement provides a comprehensive overview of the company’s revenue, expenses, and overall profitability within a defined period. Accurate categorisation of income and expenses is essential for understanding profit margins and operational efficiency.

Balance sheet: This document presents a snapshot of the company’s assets, liabilities, and equity at a specific moment in time. Regular updates and reviews of assets (such as inventory) and liabilities (like loans) are crucial to reflect the current state of the business accurately.

Cash flow statement: This statement offers insights into the company’s liquidity by illustrating cash inflows and outflows. It is essential for assessing the company’s ability to cover short-term liabilities and operational expenses.

4. Incorporate operational metrics

Operational metrics offer a detailed perspective on your business’s performance, enhancing the financial data.

You should consider:

Sales and production figures: Monitor monthly, quarterly, and yearly sales alongside production costs to assess efficiency and profitability.

Inventory levels: Track inventory levels to maintain optimal stock levels, minimising storage costs and ensuring timely deliveries.

Customer satisfaction metrics: Utilise tools such as Net Promoter Score (NPS) or customer satisfaction surveys to evaluate customer sentiments regarding your products or services, identifying areas for enhancement. 

5. Prepare an executive summary

An executive summary at the beginning of your management accounts can be very helpful. This section could highlight:

• Key monthly data/figures. 
• Notable changes or concerns. 
• Net profit margins. 
• Turnover ratios. 
• A departmental overview. 

6. Analyse and interpret

When analysed and interpreted accurately, data becomes actionable insights.

Consider the following:

Trend analysis: Identify patterns in sales, expenses, and other key metrics. Recognising these trends early can help in capitalising on opportunities or mitigating risks.

Budget vs. actual: Compare forecasted budgets with actual figures to pinpoint overspending or areas of savings.

SWOT analysis: Conduct regular SWOT (Strengths, Weaknesses, Opportunities, Threats) analyses to inform strategic decisions and identify growth opportunities or potential challenges. 

7. Share the insights

Communication is key. Sharing insights ensures that all your stakeholders are on the same page.

You should consider:

Regular updates: Conduct frequent meetings with key stakeholders to review findings from management accounts, promoting alignment and informed decision-making.

Visual representation: Utilise charts, graphs, and other visual aids to present data, enhancing comprehension of complex information.

Recommendations: Don’t just present the data. Offer recommendations based on the insights. This proactive approach can guide the business towards better decision-making. 

FAQs

How often are management accounts prepared?

While there’s no fixed schedule for preparing management accounts, the common practice is to do so monthly or quarterly, allowing business owners to maintain regular oversight of their finances. 

Can management accounts help secure new funding?

Yes, management accounts are crucial for securing new funding. They give investors and lenders a clear view of the company’s financial health and potential for growth, building confidence in potential funders.

How are management accounts different from statutory accounts?

Statutory accounts are primarily used for external reporting and regulatory compliance, while management accounts are internally focused, providing guidance for strategy, assessing financial position, and monitoring progress.

Make better financial decisions with Capture Expense

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Organisations in the UK can reclaim VAT on the fuel component of mileage expenses paid to individuals.  
 
However, navigating this process is complex and requires gathering specific evidence to meet HMRC requirements.  
 
In our blog, we’ve compiled all the necessary information on reclaiming VAT for fuel and petrol expenses during business trips, helping you choose the best approach for your organisation. 

Who is eligible to reclaim VAT on fuel? 

To reclaim VAT on business expenses, including fuel, you need to be a VAT-registered business.  
 
If your annual turnover is below £85,000, you can opt to register for VAT and claim back VAT on expenses. However, if your annual VAT taxable turnover exceeds £85,000, VAT registration is mandatory.  
 
It’s also worth noting that if you’re under the VAT Flat Rate Scheme, you can’t reclaim fuel expenses. 

How much VAT on fuel can you reclaim?

According to HMRC guidelines, you can reclaim 100% of the VAT on fuel used for business purposes.  
 
To comply with HMRC requirements, you must maintain precise mileage records and retain fuel receipts as evidence of expenses. 

How do you reclaim VAT on fuel usage? 

To reclaim VAT on fuel usage, ensure it’s used solely for business purposes (VAT can only be reclaimed on business-related expenses). 

However, as many small businesses and self-employed individuals use their vehicles for both business and personal purposes, this can complicate the process of reclaiming VAT on fuel.

There are two ways you can reclaim VAT on fuel:

1. Reclaim all the VAT paid on fuel purchases and pay the appropriate fuel scale charge for your vehicle. 
2. Claim VAT only for the fuel used during business trips by maintaining thorough mileage records to demonstrate usage exclusively for business purposes. 

How can you reclaim VAT with a fuel scale charge?

If you use a business car for personal purposes, you can reclaim VAT on all fuel usage, including both business and personal use. Then, you’ll pay a fuel scale charge to offset the personal use, eliminating the need for detailed mileage records.

Here’s how it works:

1. Reclaim VAT on all fuel used for your vehicle. 
2. Use HMRC’s VAT fuel scale tool to calculate your fuel scale charge. 
3. Include the fuel scale charge on your VAT return.

However, if your fuel usage is very low, the fuel scale charge might exceed the VAT you reclaim, making this method unsuitable for some businesses. 

Let’s take a look at an example

Imagine you make quarterly VAT submissions and your company uses a BMW 318i with a CO2 emissions figure of 146.

The road fuel surcharge for this emissions figure is £349 per quarter, consisting of a basic charge of £290.83 and VAT of £58.17.

You can deduct the basic charge (£290.83) from the total fuel costs for its Corporation Tax calculation.

For VAT purposes, your company can reclaim the VAT paid on fuel purchases, excluding the VAT portion of the road fuel surcharge (£58.17). 

How can you reclaim fuel VAT by calculating business mileage?

As you now know, you can make a claim for only the fuel you use for company purposes.

For vehicles such as pool cars, commercial vehicles, and petrol machinery, keeping an accurate mileage record is simpler, as all mileage will have been completed for business purposes.

If you use a vehicle for both business and personal use, you will need to keep a detailed record of the purpose and mileage of all your journeys. Once you have calculated the percentage of your mileage that was for business use, you can claim that percentage of VAT back from HMRC. 

How do you prove business mileage to HMRC?

HMRC requires that you keep an accurate mileage log. For this to be compliant with HMRC standards, you must include:

• Date of the journey 
• Purpose (personal or business) 
• Start and end addresses (with postcodes) 
• Total miles driven

You should request monthly mileage logs from all your employees.

It’s also worth noting that any self-employed individuals need to maintain their own records. 

How do you submit a VAT claim to HMRC? 

As a business, you can claim back VAT on fuel expenses, along with other business costs, in your VAT return. If you’re VAT-registered, you’ll need to submit a VAT return every three months, called an ‘accounting period.’  
 
HMRC requires a return to be sent at the end of each accounting period, even if you have no VAT to pay or reclaim. 

The question you’ve been waiting for: Is it worth it?

As you may have guessed, many businesses avoid reclaiming VAT on fuel and petrol due to the complexity of bookkeeping. However, it can be beneficial if you provide free fuel to employees for business purposes.  
 
If this is something you’re interested in, keep records for up to four years, as VAT on fuel can only be reclaimed within this timeframe, and remember to use Fuel Scale Charge and Flat Rate Claim to simplify VAT calculations for fuel expenses. 

FAQs 

What is a reasonable rate for fuel expenses? 

To determine a reasonable rate for fuel expenses, businesses can use HMRC’s Advisory Fuel Rates, which provide standard mileage rates based on engine size and fuel type. These rates apply to both VAT on business fuel usage and private journeys using company fuel.

For employees using company cars and fuel:

• The company can reimburse the employee at the advisory rate for business mileage and reclaim VAT on the payment. 
• Alternatively, the company can cover the fuel cost, then charge the employee for private mileage, reclaiming VAT on the fuel cost minus the employee’s contribution. 

Can sole traders claim petrol costs? 

As a sole trader, you can claim petrol costs as part of your business expenses. You’re eligible for a mileage allowance of 45 pence per mile for the first 10,000 miles when using a car for business purposes. After exceeding 10,000 miles, the allowance reduces to 25 pence per mile. If you use a motorbike for business, the mileage allowance is 24 pence per mile.

Take advantage of our business mileage tracker

If you need help calculating your fuel expenses, or with any other aspect of your travel expenses, book a demo today to see how we can help.