It is common practise for a UK employer to pay an employee
expenses when that employee uses his own vehicle for
business journeys. Often the amount paid is based upon a
standard rate per mile which varies from employer to
employer. There are tax issues every employee should be
aware of to maximise tax free expenses and minimise income
tax payments.
The nature of the business journeys must adhere to certain
rules in order for these expense payments to be tax free.
Not usually an issue when an employee is paid expenses but
nevertheless something each employee should be aware of.
In order that the payments are free of tax are three
general rules. First the payments must be made to yourself
and not to a third party, for example another company
receiving the money on your behalf. The use of the vehicle
must be a work journey and excludes travel to work where it
is considered that work place is a permanent place of work.
And finally the amount paid must be within the mileage
allowances fixed by the government and part of the Inland
Revenue rules on the limits for mileage payments.
Any other payments relating to the use of your own vehicle
which do not fall within the above rules are regarded as
additional income and subject to income tax and national
insurance deductions as would be other forms of payment.
Also any payments made in respect of non work journeys fall
outside the rules and would be taxed as additional income.
A work journey is one which you must carry out as part of
doing that job including when requested by the employer to
conduct a specific business journey on its behalf. Visiting
suppliers, clients, delivering goods and attending meetings
outside the normal workplace would all be considered work
journeys.
A journey to a normal place of business would not be
considered a work journey and that rule also excludes
detours during the journey for example to visit a client or
drop off goods. However if the detour on the way to work is
significant then the excess mileage covered would be
allowable and the expenses paid not subject to tax.
The approved mileage allowance for cars and vans in the UK
is 40p per mile for the first 10,000 business miles and 25p
per mile for each business mile over 10,000 miles in each
tax year. The approved mileage allowance for motor cycles
is 24p per mile for the first 10,000 business miles and 24p
per mile for each business mile over 10,000 miles in each
tax year. The approved mileage allowance for bicycles is
20p per mile for the first 10,000 business miles and 20p
per mile for each business mile over 10,000 miles in each
tax year.
These rates are the maximum levels of expenses an employee
can receive tax free during a tax year, were set in the
financial year 2002-03 and still fixed at that level in the
financial year 2007-08. Employees are not due any tax free
payments on any other vehicle running costs. For example if
you break down on a journey and your employer assists with
the financial cost of repairing that vehicle any amounts
paid over and above the maximum mileage rates quoted above
would be taxable.
The bad news is if your employer pays you more than the
above mileage allowances then the excess amount paid is
taxable as additional income. If for example your employer
pays 45p per mile for the first 10,000 miles then it would
be normal for that employer to include the different
between 45p and 40p in your wage slip and deduct income tax
from the 5p.
The good news is if your employer pays you less than the
mileage allowances then you are entitled to claim mileage
allowance relief on the shortfall. If for example your
employer pays 35p per mile then less than 10,000 miles you
are entitled to claim the mileage allowance relief on the
number of miles at 35p multiplied by the 5p shortfall.
To claim the mileage allowance tax relief employees must
maintain a record of the work journeys and the amounts
paid. Those records should state the date, mileage covered,
a brief note of the journey and the amount paid by the
employer, records which may be required to substantiate the
mileage allowance relief. To actually make the claim for
relief this can be done by sending a letter with the
details to the Inland Revenue at the end of the financial
year or alternatively request and complete the Inland
Revenue form provided for this purpose.
Using different vehicles during the tax year is not
relevant. The total mileage of all vehicles used is the
relevant figure. However being paid a mileage allowance by
more than one employer is relevant.
If during the financial year an employee has been paid a
mileage allowance by more than one employer then the total
paid from all employers must be added together to produce
the total amount paid. For example if one employer paid 30p
per mile for 1,000 miles and a second employer paid 35p per
mile for a further 2,000 miles then the total payment would
be 1,000 pounds (300 + 700) and the mileage allowance would
be 1,200 pounds (400 + 800). The mileage allowance tax
relief in this example would be £200 at the employees
maximum tax rate.
If an employee has not claimed mileage allowance relief in
past years then application can be made to the Inland
Revenue to reclaim the relief for a period up to six years
after the year the claim was not made. When making a claim
for unclaimed tax relief in previous years the Inland
Revenue are likely to request some evidence of the claim
which your previous employer may be able to provide.
Good luck with your claim for mileage allowance relief. If
you found this article useful please copy and submit the
article to forums and blogs across the internet to make as
many people as possible of the money out there waiting to
be claimed. If posting this article then the author
signature and links must also be included in the posting.
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Terry Cartwright designs UK Accounting Software at
http://www.diyaccounting.co.uk/ on excel spreadsheets
providing complete Bookkeeping solutions
http://www.diyaccounting.co.uk/bookkeeping.htm
for small
to medium sized businesses
