VAT on mileage expenses

For the best part of a year now, I've been unsure about whether VAT should be added to mileage expenses to our clients and have received conflicting information from accountants, clients, websites, and forums. HMRC were of no use when I called them and asked for advice - they pointed me towards their website and refused to give me advice on a specific example.

Finally, an accountant from a forum (FreeAgent Central) has managed to get a definitive answer out of HMRC. He replied to my queries with their email response and I include it here for the benefit of anyone else confused by this. In short, VAT is always applicable on mileage as it is "not a service received by your client" and cannot therefore be treated as a disbursement.

Thank you for your email dated 17 August 2009, regarding the VAT treatment of mileage costs.

You have asked if VAT must be added to any mileage costs reclaimed from a client when it is itemised separately on the invoice.

Firstly, I would point out that the sub-paragraph you refer to in The VAT Guide, 25.1.3, gives examples of supplies that cannot be treated as disbursements, and concludes each example with a confirmation that VAT is due on the full value of the supply.

However, in respect of the recovery of costs from a client, these would always be taxable unless they were third party payments made by you, and therefore treated as disbursements. Mileage costs are something that you will have incurred and which you wish to recover. They are therefore always taxable as they are not a service received by your client.

My thanks to Stuart Jones for this.