Mileage allowance in the UK – what is it and how does it work?
Providing mileage allowances to employees driving to work has become increasingly popular in recent years. With the many rules at HMRC, it can be confusing for employers and employees alike how this process works. This article walks you through the most important rules you should know as an employer who pays the mileage allowance, an employee who receives the payments and as a self-employed person – by claiming deductions.
Mileage allowance for employees
My employees use their private vehicles for business trips. Do I have to pay you mileage payments?
As an employer, you are not obliged to pay your employees a mileage allowance. However, many choose to reimburse their employees for business mileage because anything paid below or at the same level as the HMRC approved mileage rates will not be reported to the agency.
Your company can choose to pay the exact amount of the mileage allowance specified by HMRC, less or more.
If you pay more per mile than the approved rate, the excess will be considered a personal benefit for your employee and the employee will have to pay tax on that amount.
In order to pay out MAPs (mileage payments), your employees should submit a mileage log documenting their business trip for the month in accordance with HMRC requirements.
It is important to keep the mileage logs provided to a file. If your company is audited, you will likely need to demonstrate that you paid your employees the correct amount of mileage allowance.
> See also: 8 of the best electric cars for small business leasing
How do I know how much mileage allowance my employees have to pay?
If one of your employees drove 70 miles this month and you quote a rate of 40p per mile, the calculation is as follows:
70 x 0.40 = £ 28
What should my employees know about the mileage allowance?
Employees should know if you are paying for MAPs and at what price per mile. It is important that they are also familiar with the HMRC requirements for a mileage log.
Your employees should be aware that depending on the rate you are reimbursing them at, they may have to pay tax or be able to claim a tax deduction.
You pay your employees a mileage credit based on the mileage rates approved by the HMRC:
In this case, the employees receive the full amount of the mileage allowance. You are not additionally taxed and cannot claim any tax deduction for your business trips.
You pay your employees less than the HMRC approved tariff:
If employees are paid less, they will not be taxed on the amount they received for driving and they can apply for a Mileage Allowance (MAR).
You’re reimbursing your employees more than the approved HMRC rate per mile:
Payments in excess of the approved amount per mile are considered a personal benefit to your employees and are taxed as income.
What tax deduction will my employees receive if I do not reimburse them for their business kilometers in full?
Your employees can apply for Mileage Allowance Relief (MAR). MAR is based on the advice rates of the HMRC. If you reimburse your employees 40p per mile, they can claim an additional 5p for every mile they drive that year as a tax break.
Mileage allowance for the self-employed
I am self employed. What rules do I follow when driving for my company?
As a self-employed person, you can claim miles using one of two different methods – simplified vehicle costs or actual vehicle costs.
Claim mileage with the Actual vehicle cost method means that for every penny you spend on business miles for the year, you will receive deductions. You should keep all receipts of your business travel expenses. The vehicle costs that you can claim include:
- Maintenance and repair of the car
- Puncture Protection
- License fees
This method can be of advantage for you if your vehicle costs are due to e.g. B. expensive insurance or vehicle taxes are high. Note that this can be time-consuming preparation for your annual tax claims.
The simplified cost method is great for avoiding tedious calculations and collecting evidence. This enables you to use a flat rate set by the HMRC to calculate your entitlement to the mileage allowance. The flat rate covers all vehicle costs for your business travel, e.g. B. Fuel, Maintenance, Depreciation, Insurance, Road Tax, etc.
Other costs that you can claim
As a self-employed person, you can also take advantage of any room and board and travel with other vehicles (e.g. airfare) during a business trip.
How to apply for a mileage allowance as a self-employed person
Regardless of which method you choose to apply for mileage costs as a self-employed person, you can claim them in your tax return for self-assessment. You do not need to provide proof of entitlement but must keep your receipts and mileage logs for five years in the event of an audit.
What are the current mileage as set by the HMRC?
The mileage rate set by HMRC has remained unchanged since 2011. The current mileage rates are used both for mileage relief for employees and for mileage promotions for the self-employed.
The prices for 2021 are as follows:
- Cars and vans – 45p for the first 10,000 miles, 25p for every mile over 10,000 miles for business
- Motorcycles – 24p per mile regardless of the kilometers traveled
- Bicycles – 20p per mile regardless of the mile driven
What should a logbook contain according to the requirements of the HMRC?
A mileage log is considered HMRC Compliant if it contains the following information:
- The date of the trips
- The start and end addresses of each trip, including postcodes
- The distance traveled
Additionally for employees:
The total amount of the mileage allowance that your employer has paid you.
How do I keep an accurate logbook?
There are a few ways to keep a logbook – on paper, as a spreadsheet, or through an application. Paper logs and spreadsheets require you to manually enter the required information about your mileage. The use of a mobile application has become popular in recent years because it is not easy to do just that.
Mobile applications use GPS to track your journey and automatically create a logbook. When choosing an app, look for an app that creates HMRC compliant records that can be used for both miles payments and miles relieving.
For more information on mileage, see this HMRC Mileage Guide or the HMRC website.
Katerina Nikolova is a marketing and communication specialist at Driversnote
Is It Better To Buy Or Lease A Car For Your Small Business?