Approved mileage allowance payments: all you need to know

HMRC approved mileage allowance payments

Regardless of the reasons for business travel, there are incentives in place to encourage employees and self-employed workers to claim tax relief on the mileage they cover for the work. The HMRC issues what are known as approved mileage allowance rates to make it easier for employers and self-employed workers to do so. However, calculating the right mileage rate may seem daunting at first. 

Although many employers now encourage the use of greener forms of transport, such as bicycles and walking, for local journeys, sometimes driving is the only convenient way of reaching the destination in a timely and cost-effective way.

In the UK, if you use your own vehicle (car, motorcycle, bicycle) for work purposes, you may be covered by the HMRC mileage allowance payment scheme. This scheme applies to vehicles which are owned outright by an individual employee, or which are leased by them with their own money (as opposed to being leased by the employer). Self-employed workers can also claim mileage allowance payments if they travel for business reasons.

Approved mileage allowance payments do not apply when an employer provides employees with a company vehicle. Similarly, they do not apply when employees use public transport, which falls within other rules on corporate travel expenses.

The approved mileage allowance payment 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. HMRC sets a maximum amount that a business or self-employed individual can claim per mile.

It should be noted that employers in the UK are not obliged to pay a mileage allowance to their employees, hence the “advisory” nature of these rates. Many employers, however, do choose to incorporate mileage allowance payments into their employee benefits.

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, then the excess is considered to be a “personal benefit” to the employee and the excess will be taxed through PAYE. Anything above the approved amount must be reported to the HMRC and included in the company’s tax returns.

The standard HMRC-approved mileage allowance payments for 2021-2022 were as follows:

If an employee is paid less than the approved amount by their employer, they may deduct the shortfall and qualify for mileage allowance relief.

If your vehicle is an electric vehicle, it is worth finding out more about the precise tax relief rules that apply, as employees may be considered to receive a “taxable benefit” as a result of having an electric car if, for example, the employer pays for installation of a vehicle charging point at the employee’s home or provides a charge card for the employee to use.

What types of journeys are covered?

As with all business travel claims, approved mileage allowance payments only cover journeys which are undertaken “wholly and exclusively” for business purposes. In other words, you cannot pop in to see a client on your way back from a visit to your parents and claim the entire journey as a business expense. Overnight visits to other cities cannot be extended to include non-business-related sightseeing.

Similarly, approved mileage allowance payments do not apply to the “usual” commute to and from a permanent workplace. However, HMRC does allow claims for travel to and from “temporary” workplaces, which are defined as locations where the employee is obliged to attend on an irregular basis or for a limited amount of time (no more than 24 months). There are certain technicalities around the definition of temporary workplaces, and it might be worth seeking advice from an expert if you are unsure as to whether this applies to your situation.

Tracking mileage for mileage allowance relief claims

Traditionally, employees kept track of their mileage using an old-fashioned paper logbook. However, most companies now use digital tools. Some, such as Excel spreadsheets, involve manually entering information about the business travel into the computer. Increasingly, however, apps are used 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 prepare tax returns.

Elements to include when tracking mileage

Regardless of whether you track your mileage using a pen and paper, an Excel spreadsheet or an app on your mobile phone, there are certain pieces of information which must be recorded.

Meticulous records need to be maintained and produced in the event of an HMRC inspection. These records must include the following elements:

• The date and time of the journey
• The start and end points of the journey
• The type of vehicle used (including engine capacity)
• The type of fuel used
• The purpose of the trip
• The actual mileage driven
• Receipts for fuel, including the amount of VAT

These records must be complete. Any claims which cannot be backed up by documentation will be refused by HMRC (with few exceptions). Filing incomplete claims may also give rise to penalties, so it is strongly advised to keep detailed, accurate records of your business journeys.

Conclusion

Do you want to find an easier way to record, track and reimburse mileage allowance payments and mileage allowance relief? Do you want to get rid of the need to collect paper receipts, invoices and spreadsheets? Mooncard mobility solutions may be just what you are looking for. Get in touch for a no-strings-attached demo and a tailor-made quote corresponding to your business needs.