Mileage allowance relief : all you need to know
Travel expenses constitute a large part of all business expenses. In the UK, the calculation, reporting and reimbursement of travel expenses are covered by various pieces of legislation which entitle companies and members of staff to various forms of tax relief. Monitoring, approving and reporting on business travel expenses can be challenging for business owners and for employees. In this article, we will look at a specific aspect of travel expenses, known as mileage allowance relief, and explore various related tax issues.
Employees and self-employed workers may sometimes have to travel to a different place for the purpose of work – this is simply the nature of much of modern business. They may travel for a short trip within the same town or city to meet with clients, give a presentation, or meet face-to-face with suppliers, for example. Both employees and self-employed workers may be required to travel for business trips further afield, which may last several days or weeks.
Travel away from home and the workplace generally results in additional costs, which vary depending on the destination and the mode of transport used. Under certain circumstances, an employee may decide to use their own personal vehicle for work purposes.
Mileage Allowance Payments
In the UK, if you use your own vehicle (car, motorcycle, bicycle) for work purposes, you may be covered by the mileage allowance payment scheme. This applies to employees and self-employed workers and to cars that are owned outright by the individual or are leased by them with their own money (as opposed to being leased by the employer). The rules around mileage allowances and travel expenses can seem complicated. Keep reading for an overview of the key points.
The approved mileage allowance payment 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 to their employees, but many now choose to incorporate this into their travel policy. If the employer makes a payment which is equal to or under the mileage rates published by HMRC, they do not need to report the payment to the HMRC nor pay tax on it. 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 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 mileage allowance payments for 2021-2022 were as follows:
|Type of vehicle||Rate per business mile 2022-2023|
|Car||45p for each business mile up to 10,000 business miles in a tax year, then 25p for each subsequent mile|
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. Employees may be considered to receive a “taxable benefit” as a result of having an electric car if, for example, the employer pays for the installation of a vehicle charging point at the employee’s home or provides a charge card for the employee to use.
Mileage allowance relief
Mileage allowance relief (MAR) is a tax relief scheme for employees that have travelled for work purposes using their own vehicle and have not been reimbursed up to the limit of the mileage allowance payments set by HMRC. It should be noted that different rules apply when employees use a company car for travel.
As an example, if you have travelled 7,000 miles over the course of a year for business reasons (i.e. excluding any personal trips and your usual commute to and from the workplace), your employer can pay you a mileage allowance payment of up to 45p per mile.
7,000 x 0.45 = £3,150.
However, as mentioned above, the mileage allowance payments indicated by HMRC are advisory only. Your employer is not obliged to pay all, or any, of the mileage allowance payment. If your employer chooses only to pay you 25p per mile, you would end up with 7,000 x 0.25 = £1,750, in other words, you will have a shortfall of £1,400.
You may, however, claim mileage allowance relief on the £1,400 shortfall.
The mileage allowance relief rates are the same as the MAPs, namely 45p per mile for cars (for the first 10,000 miles and 25p thereafter), 25p for motorbikes, and 20p for bicycles.
The actual amount you can claim is based on your tax bracket. The amount you can claim depends on whether you are taxed at 20% or 40%. In other words, depending on your tax bracket, you will only receive a percentage of the full amount of £1,400.
Taking our example, if the employee who claimed £1,400 mileage allowance relief pays 20% tax, they will be entitled to 20% of the amount, which comes to £280 total tax relief.
VAT and mileage allowance
If an employer pays the full mileage allowance payment (i.e. 45p per mile for a standard car), they may also claim back the VAT on the cost of the fuel in line with the quarterly Advisory Fuel Rates. This depends on the size of the car’s engine but usually amounts to between 12p and 20p. The employer could also apply for a VAT return depending on the number of miles travelled. A VAT claim can be made to HMRC on the employer’s VAT return.
Claiming mileage allowance relief
Tax relief within the scope of mileage allowance relief can be claimed at the end of the tax year from HMRC. In order to make your claim, you must keep accurate records of the mileage covered throughout the year, add up the mileage allowance payments (MAPs) you have received from your employer (indicated on your pay slip), and subtract the MAPs you have received from the full amount of the approved mileage allowance payment rates issued by HMRC.
There is a limit of £2,500 on claims before they can be made through a Self-Assessment tax return. For anything below this amount, the form P87 can be used and sent directly to HMRC who will refund any income tax you have overpaid because of your mileage expenses.
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 business travel expenses into a 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.
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.