UK business mileage allowance and mileage allowance relief

If you use your own car for business travel, you are entitled to claim certain costs as an allowance against tax and that could reduce your tax bill. The way company car and mileage allowances are calculated in the UK is different for employees and self-employed people. In this article, we explain the allowances for employees.

In summary, you can claim Mileage Allowance Relief (MAR) at a rate per mile published by HMRC. You multiply the mileage rate by the number of qualifying business miles completed in the tax year and deduct the total from your tax bill.

You may also be able to claim the VAT paid on petrol as an allowance and there is a further allowance if you carry a passenger on any qualifying journey.

Qualifying business travel

HMRC guidelines list several types of business journey that qualify for MAR:

• Journeys to a place where you can only carry out the work if you make the trip. An employed electrician travelling to a building site, for example, or a surveyor visiting premises to carry out an inspection would qualify.

• Journeys from your office to meet a client for a business meeting.

• Journeys from your permanent place of work to other sites within your company for business purposes. If you are based in London, for example, and travel to your Cambridge office for a meeting, that journey qualifies.

• If you work as a director / employee of a limited company you can claim mileage (Travel) to a temporary workplace if you work there less than 40% of your working week (on average) or you expect to be working there for less than two years.

Not all journeys in your own car qualify for MAR:

• Regular travel to and from your permanent place of work, for example, does not qualify.

• If you make a private journey and use part of the journey for travel to a business meeting, you can only claim MAR if the business element represents the largest part of the journey. For example, if you drive from London to Leeds to visit a relative, but visit a client in Hertfordshire for a meeting on the way, the business proportion of the mileage would not be sufficient to support an MAR claim.

Related: Should you offer your employees a company car?

Recording business travel and mileage

If you intend to claim MAR, you must keep accurate records of your qualifying business mileage expenses.

• HMRC does not require records when you submit your claim, but you may need them if HMRC wants to carry out an inspection. You should keep the records for five years after the tax year when you submitted the MAR claim.

• You don’t need to keep receipts for other travel-related costs such as petrol or car repairs as HMRC states that the mileage allowance covers those costs.

• However, if you or your employer wish to claim VAT on your petrol costs as an allowance, you should retain receipts. Claiming VAT on petrol costs will be explained later.

To record your qualifying mileage, you should keep a log that includes details for each journey, including:

• Date

• Destination

• Purpose of journey

• Mileage

Read More: Benefit In Kind: When does a van become a company car?

Approved mileage rates

HMRC publishes approved rates for qualifying business mileage – the approved mileage allowance payment (AMAP). AMAP is the maximum amount per mile that you are allowed to claim for Mileage Allowance Relief.

The current rates for AMAP for private cars are:

• 45 pence per mile for the first 10,000 qualifying miles

• 25 pence per mile for subsequent qualifying miles.

So, if your qualifying mileage for the year is 15,000 miles, you could claim:

£4500 (10,000 miles x 45 pence) + £2250 (5000 miles x 25 pence) = £6750 total.

AMAP covers the cost of running and maintaining your vehicles, according to HMRC, including the costs of fuel, oil, servicing, MoT tests, repairs, insurance and car tax. Despite rising costs, the current AMAP rates have been in place for almost 15 years with only one small change during the period.

Mileage rates for electric and hybrid vehicles

If you own an electric or hybrid vehicle and use it for qualifying business travel, you can claim for Mileage Allowance Relief in the same way.

The approved mileage rates for both electric and hybrid vehicles are the same as their petrol or diesel equivalent:

• 45 pence per mile for the first 10,000 qualifying miles

• 25 pence per mile for subsequent qualifying miles.

Claiming Mileage Allowance Relief

You can claim all or part of your MAR against your tax bill depending on the way your employer reimburses you for business mileage.

• If your employer does not reimburse you for business mileage, you can claim the total amount against tax. Using the 15,000 mile example, you could claim £6750. If you pay income tax at 20 percent, you would reduce your tax bill by £1350.

• If your employer reimburses you at the same mileage rates, you would not have to claim against your tax bill and you would not have to pay any tax on the reimbursement you received.

• If your employer reimburses you at a lower rate than the HMRC AMAP, you could claim relief for the difference between your employer’s reimbursement and HMRC’s allowance. So, if your employer paid 25 pence per mile in reimbursement and you travelled 10,000 business miles, you would receive £2500. You can claim the additional 20 pence per mile for 10,000 miles (£2000) as MAR. This would save £400 if you pay tax at 20 percent.

• If your employer reimburses you at a higher rate than the HMRC AMAP, you will have to pay tax on the ‘profit’. So, if your employer pays 60 pence per mile and you travelled 10,000 business miles, you would receive £6000 in reimbursement. You would pay tax on £1500 (£6000 - £4500), adding £300 to your bill if you pay basic rate tax of 20 percent.

Additional income tax and National Insurance contributions

Once you have calculated your Mileage Allowance Relief, you should include the relevant figures on your tax return, if you have to submit a return.

If you are liable to additional tax, your employer will report this to HMRC and your tax code will be adjusted to reflect this. Your employer may also have to deduct additional National Insurance contributions.

Allowances for carrying passengers

If you carry passengers from your own company on a business trip and they are travelling for business reasons, you can claim an additional allowance of 5 pence per passenger per mile.

Your employer will reimburse you for this; you don’t have to inform HMRC and the payment is not taxable.

Claiming VAT on petrol costs

If your business is VAT-registered, your employer may be able to reclaim the VAT paid on petrol. Currently, HMRC indicates that 16 pence of the 45 pence allowance represents fuel costs.

The VAT element of 16 pence at a VAT rate of 20 percent is 2.67 pence per mile and your employer can claim this in addition to the basic 45 pence per mile.

Depending on the amount of VAT to be reclaimed, you need to provide receipts for petrol totalling at least the minimum amount. If, for example, you travelled 100 business miles, petrol costs would represent £16 (100 x 16 pence). VAT would be £2.67 (100 x 2.67 pence). To validate the claim, you must have petrol receipts totalling at least £16.

The importance of Mileage Allowance Relief

If you cover a lot of miles on business, MAR can play an important part in reducing your tax bill, so it pays to record all your mileage accurately and make a full claim.

Accounts and Legal has a great deal of experience in personal tax issues and can provide advice on maximising the benefits of Mileage Allowance Relief. To learn more on mileage allowance or how to maximise your tax breaks, or if you’d like us to submit a tax return on your behalf, get in touch with our accountants on 0207 043 4000 or info@accountsandlegal.co.uk.

You can also get a quick, online accounting quote by answering a few simple questions about your business.