Travel expenses and mileage allowances
In the UK, if you use your vehicle regularly for work purposes, you may be covered by the car mileage allowance. This applies both to employees and to self-employed workers. The rules around mileage allowances and travel expenses can be complicated, so here is an overview of the key points.
The mileage allowance basically covers the cost of fuel, insurance, road tax and general wear and tear on an employee’s personal vehicle when they use it in the course of their work. A maximum amount is set by HMRC that a business or self-employed individual can claim per mile.
Employers in the UK are not obliged to pay a mileage allowance
Employers in the UK are not obliged to pay a mileage allowance to their employees, but many now choose to incorporate this into their travel policy. As long as the payment is equal to or under the HMRC approved mileage rates, it does not need to be reported to the HMRC and is not subject to tax. If an employer pays more than the approved mileage allowance payment (MAP), then the excess is considered to be a “personal benefit” to the employee and tax has to be paid on it. Anything above the approved amount must be reported to the HMRC and included in the company’s tax returns.
If an employee is paid less than the approved amount, they can deduct the shortfall.
HMRC approved mileage allowance payments
The approved amounts depend on the type of vehicle used (car, van, motorbike, bicycle) and the distance travelled. It applies only to employees using their own vehicles and may include interest on any loan to buy their vehicle. They do not apply to road tolls or parking charges. The standard rules for tax deductions apply to these types of expenses.
Mileage allowance payments must be made directly to the employee (not to a third party).
HMRC publishes tables of approved mileage rates depending on the type of vehicle and the number of miles covered.
|2012 onwards||First 10,000 business miles in the tax year||Each business mile over 10,000 in the tax year|
|Cars and vans||45p||25p|
Calculating the MAP is very simple. The number of miles travelled is multiplied by the mileage rate for the relevant vehicle. For example, if you travel 5,000 miles in a year using your car for business, the MAP would be 5,000 x 0.45 = £2,250. If you drove one other passenger throughout the year, this would amount to an extra 5,000 x 0.05 = £250.
If an employer is paying employees a mileage allowance for using their own vehicle, they may also be able to reclaim the VAT on the employees’ mileage expenses.
What journeys can mileage be claimed on?
The journeys that mileage allowance payments can be claimed for must be “wholly and exclusively” for the purposes of business. Whether it is a regular, frequent or occasional journey, MAPs apply.
These journeys include travelling from one office or worksite to another and travelling to a temporary location to conduct necessary business. This would include visiting suppliers, meeting with clients, and attending conferences or training sessions.
The types of journeys that MAPs cannot be claimed for include any travel for personal reasons, the usual commute to and from the workplace, and travelling to a location that is very close by, such as a neighbouring site accessible on foot.
When an employee uses a company vehicle, HMRC applies advisory fuel rates. These are used when employers reimburse employees for business travel in company cars or when employees need to repay the cost of fuel used for personal travel.
These advisory fuel rates (AFRs) are issued by HMRC on a quarterly basis depending on the type of fuel and current fuel prices. The rates are “advisory” only but ensure that employees are fairly compensated for the cost of running company vehicles as part of their job. These rates are designed only to cover the cost of the fuel and not other on-road costs.
There are different advisory fuel rates for vehicles powered by petrol, diesel, liquefied petroleum gas (LPG) and fully electric vehicles.
Types of vehicles
Many businesses and employees are making the shift towards environmentally friendly modes of transport, especially as the government is beginning to introduce greater restrictions on the sale and use of fossil-fuel-powered vehicles. Generally speaking, electric-powered vehicles are cheaper to run than conventionally-powered vehicles, so the corresponding advisory electricity rate is much lower.
As mentioned elsewhere, employees who use their own vehicle for work (with the exception of commuting to and from work) can claim a mileage allowance payment. Employees who choose to use a bicycle for work-related travel can also claim 20p per mile, tax free. Different rules apply to self-employed workers. If the employer does not pay a mileage allowance rate for employees using their bicycles, the employee can still claim tax relief by contacting HMRC.
In general, airmiles acquired by an employee are not taxable if they were acquired in the usual way. Provided the airmiles belong to the employee rather than the employer, they are not considered as being provided “by reason of their employment”. In these circumstances, neither the employer nor the employee is required to report these items to HMRC or enter them on their tax return.
An additional tax exemption is extended to employees travelling on business journeys and carrying other employees as passengers. Payments are made specifically because the employee is carrying additional passengers and are made in addition to the MAP.
Passenger payments only apply to cars and vans and amount to 5p per mile.
Keeping track of mileage
The conventional way of keeping track of mileage is by using an old-fashioned paper logbook. However, most companies now use digital tools, including new apps which make tracking mileage much easier than before. Mobile apps use GPS to track journeys and automatically create a logbook. Many of these apps are HMRC-compliant and can be used to file claims and tax returns.
Do you want to find an easier way to manage mileage allowances? Do you want to make it easier for your staff to record their journeys? Do you want to get rid of the need to collect paper receipts and invoices? Mooncard Fuel Card may be just the solution you are looking for. Get in touch for a no-strings-attached demo and a tailor-made quote corresponding to your business needs.