Sarah Laing outlines the tax advantages of approved mileage allowance payment rates for employee business travel in their own vehicles.
It is not uncommon for employers and employees to be confused about the rules for claiming mileage and fuel costs for business travel, and the amount of tax relief which may be claimed.
Put simply, the amount that can be paid tax-free depends on whether the car is the employee’s own car or a company car. Employees can only claim mileage allowance tax relief where their own vehicle is used for business purposes. If the employee is provided with a company car, a mileage claim can be made for business travel to cover the cost of fuel where this is paid for by the employee. There are different rules if the company pays for the fuel.
Employee’s own car
An employee using their own car for work can claim a mileage allowance from their employer, which is designed to cover the costs of fuel and wear and tear for business trips. The mileage allowance will be tax-free if it does not exceed HMRC’s approved mileage allowance payment (AMAP) rates, which are currently as follows:
- Cars and vans: first 10,000 business miles per year – 45p per mile; over 10,000 miles – 25p per mile.
- Motorcycles: first 10,000 business miles per year – 24p per mile; over 10,000 miles – 24p per mile.
- Bicycles: first 10,000 business miles per year – 20p per mile; over 10,000 miles – 20p per mile.
Unless the employer reimburses employees at a higher rate, the payments do not need to be reported on annual forms P11D.
No tax relief can be claimed on payments exceeding the AMAP rates. Anything paid above the approved rates is tax deductible but must be reported on form P11D.
If an employer pays less than the approved rates, the employee can claim income tax relief from HMRC for the shortfall. This can be done via a self-assessment tax return, or by completing form P87.
For National Insurance contributions purposes, the 45p per mile rate is used for all business miles in the tax year, not just the first 10,000 miles.
Company vehicles
The AMAP scheme does not apply in respect of company cars. However, employees can still claim fuel expenses for all business mileage where they pay for the fuel. The rates are lower than the AMAP rates and are updated quarterly. Current and previous rates can be found on the Gov.uk website at www.gov.uk/government/publications/advisory-fuel-rates.
Amounts paid in excess of HMRC’s advisory rates will be taxable.
If the company pays for all fuel (i.e. business and private) the fuel benefit will be charged, which is based on the cash equivalent of the benefit each tax year. The fuel benefit is fixed each year (for 2019/20 it is £24,100). This figure is multiplied by the CO2 percentage figure applicable to the company car.
It is also worth noting that if the company pays for all fuel, but the employee reimburses the company for private use, as long as the amount paid back is equal to, or more than, the amount for personal fuel in the same tax year, the employer will not have to pay anything to HMRC or report on such transactions.
Practical Tip:
It is the employee’s responsibility to claim tax relief due on mileage allowances. Form P87 can be used where an employee is not within self-assessment but has allowable employment expenses of less than £2,500 for a tax year. Current year claims are usually be made via the employee’s PAYE tax code. However, employees have four years from the end of the tax year to make a claim for earlier years.
