Running a business means the costs can stack up, especially when it comes to getting from A to B. Whether it’s a train to a client meeting, a hotel stay for a conference, or filling up your tank before a long drive, travel is part of doing business.
The good news? You might be able to reclaim VAT on those travel expenses, putting real money back in your pocket. This guide will walk you through the rules, so you can reclaim what you’re owed, avoid common mistakes, and save money on your business travel.
What Counts as a Travel Expense?
Let’s start with the basics. A travel expense is any cost you pay when travelling for business. It doesn’t cover personal trips or your normal commute.
Common examples include:
Train, bus, tube and taxi fares
Flights for work-related trips
Mileage or fuel for using your own car
Hotel stays during business trips
Parking fees and tolls
To claim VAT, the travel must be “wholly and exclusively” for business. That means the trip can’t be partly personal. Even popping into a shop on the way can make it ineligible.
Can You Reclaim VAT on Travel Expenses?
Here’s where it gets interesting. You can reclaim VAT on certain travel costs, but not all of them. HMRC has clear rules, and not all travel is subject to VAT in the first place.
✅ You can usually reclaim VAT on:
Taxis and minicabs (if the firm is VAT-registered)
Car hire used for business only
Fuel (if you use VAT fuel scale charges or mileage logs)
Hotels in the UK (with a valid VAT invoice)
Parking charges and tolls (if VAT was applied)
❌ You can’t reclaim VAT on:
Most train and bus fares (these are VAT-exempt)
Flights, especially international ones (usually zero-rated)
Commuting or any travel that’s part-personal
Hotels outside the UK
Meals and drinks during travel (unless strict rules apply for staff)
Quick Tip: Check If VAT Was Actually Charged
Many people try to reclaim VAT on expenses where no VAT was charged, and HMRC won’t allow that.
Here’s what to check:
Trains and buses: Most tickets have no VAT
Taxis: Only reclaim VAT if the driver or company is VAT-registered
Hotels: Most UK hotels charge VAT, but check for a proper VAT invoice
Flights: Most are zero-rated, so no VAT to reclaim
Always keep a VAT invoice or receipt. If you don’t have one, you can’t reclaim VAT, even if it was technically included.
Using something like Dext makes this super easy. Just snap a photo of the receipt as soon as you get it, and Dext will pull out the key info for you. No more hunting through your inbox or glovebox when VAT returns are due.
Reclaiming VAT on Employee Travel
If your employees travel for work, you can also reclaim VAT on their travel expenses, as long as the trip is business-related and:
The company pays or reimburses the cost
There’s a valid VAT invoice in the business’s name
The expense isn’t part of their regular commute
Example:
If your employee pays for a hotel while attending a work event and gives you a valid VAT invoice, you can reclaim the VAT when you reimburse them.
How to Reclaim VAT on Travel in Xero
Using Xero? Good news. It makes VAT tracking much easier if you log your expenses properly.
Here’s how to do it:
Create a bill or expense claim in Xero
Choose the correct category (e.g. “Travel” or “Motor Expenses”)
Select the right VAT rate:
20% (Standard) if VAT was charged
No VAT if it wasn’t
Attach the VAT invoice as proof
Reconcile the payment from your bank feed
If you use Xero Expenses, staff can upload receipts straight from their phones, making it easier to keep things tidy.
And for mileage? We love MileIQ for tracking business journeys. It runs quietly in the background, automatically logging your trips, and lets you mark each one as business or personal with a quick swipe. You can export mileage reports and attach them straight into Xero or your accountant’s system. It’s a huge time-saver and keeps your VAT claims squeaky clean.
How VAT Reclaims Save You Money
Every little bit helps when you’re running a business, and VAT adds up fast. If you’re not reclaiming what you’re entitled to, you’re leaving money on the table.
Example:
Reclaiming 20% VAT on £300 of hotel stays = £60 back
Do that every month? That’s £720 a year saved, just on accommodation.
And that’s before you even factor in mileage, taxis, or car hire.
Common Mistakes to Avoid
Here are a few things to watch out for if you want to keep HMRC happy:
❌ Claiming VAT on non-VAT expenses
Double-check your receipt. If no VAT was charged, you can’t reclaim it.
❌ Mixing personal and business travel
Even a small personal detour can make the whole trip ineligible for VAT purposes.
❌ Missing or incorrect invoices
You need a proper VAT invoice to make a claim. A booking confirmation or email receipt usually won’t count.
❌ Reclaiming VAT on overseas hotels
You can’t claim UK VAT on hotel stays outside the UK. Foreign VAT is handled separately and is often harder to recover.
Before You Hit the Road
Claiming VAT on travel expenses is one of the easiest ways to save money in your business, as long as you follow the rules. Keep your receipts, check that VAT was actually charged, and make sure your trip was fully business-related.
If you’re using tools like Xero, Dext or MileIQ, you’re already a step ahead. They help you keep your records clean, your claims accurate, and your stress levels low when HMRC comes calling.
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