The Fizz! Blog

HMRC's fuel-only mileage rates - make sure you're reclaiming all the VAT you can

Taxman-approved fuel-only mileage rates changed on the 1st December.   They've not changed much (the petrol ones haven't changed at all in fact).

These are the rates that HMRC are happy for employers to use a) to reimburse staff for fuel used for company business that they've paid for and put in company cars, or b) reclaim from staff the cost of company fuel they've used for their own private motoring.  But they're also the rates that businesses can use to reclaim VAT on some of the mileage allowances paid to employees and directors.

Employers can pay a mileage allowance of up to 45p a mile, tax-free, when employees use their own car for business (plus 5p a mile if they've got a colleague with them!).  That hasn't changed, it remains 45p.  You can’t reclaim VAT on all of the 45p, but you can reclaim VAT on the part that represents fuel, as long as you retain VAT receipts covering the cost.

The new list of rates is here:

https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016

If you're VAT registered, not on the flat-rate scheme, and failing to reclaim VAT on your mileage costs at all, you should start.  You can even reclaim some of the VAT you've missed out on in the past.

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Self-employed? Check your National Insurance history

The self-employed (for tax purposes, that’s sole traders and partners, not limited company owners) pay two types of National Insurance, Class 2 and Class 4.  Class 2 is trivial - it’s £3 a week, regardless of earnings, so £150 a year.  Class 4 isn’t trivial - for someone with average income it’s probably around £3,000 a year.

Counter-intuitively, it’s the modest Class 2 payment that gets you your year’s credit towards State Retirement Pension and preserves your rights to state benefits; the much bigger Class 4 is irrelevant for those purposes and is really just a tax.

For some years, both Class 2 and Class 4 have been collected via your Self Assessment Tax Return, and it’s not really possible to pay one and not the other.  Prior to 2015, though, only Class 4 was paid via the tax return - Class 2 was generally paid via cheque by post, or over the counter at the Post Office!

Now, that’s caused some problems, because HMRC’s databases of a) who is self-employed for National Insurance purposes and b) who is self-employed for doing a tax return purposes are not properly connected up.  So there are some (or many) people who, prior to 2015, apparently paid tax and Class 4 NI on self-employed income via their tax return for years, but didn’t separately tell HMRC’s National Insurance department about their self-employment, and hence were never asked to pay Class 2 and so have missed out on building up their State Pension entitlement.

This has certainly not happened on our watch.  But if you were a sole trader or partner some time before 2015, and we weren’t doing your tax returns then, you might want to check out your position.  To do that, you need to set up something called a Personal Tax Account (easily done online), which will show you the credit you’ve built up, and any missing years.  It seems that HMRC are being understanding where this has happened, but it’d be better addressed sooner rather than later.

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