We are often asked by our clients what business mileage they can claim back, and what tax they will have to pay if they do.
Below we break down the differences between business mileage and private mileage, and their different tax treatments.
If your company provides you with free fuel for private use – either in a company vehicle or your own – then tax is chargeable on the cash equivalent. The person receiving the fuel benefit will be charged income tax as though it was part of their earnings, and the business will be charged national insurance on the amount as if they were paying the employee in wages.
Where the employee repays the entire cost of the private fuel to the company then there is no benefit to them and hence no tax on it. From the 17/18 tax year onwards the repayment has to be made to the business before 6th July following the relevant tax year or it becomes chargeable to tax.
If the employer gives the employee a lump sum allowance amount for fuel that is not dependent on actual mileage, then the full amount is taxable.
Where an employee uses their own vehicle for business purposes, they are able to claim back this expense – with no taxable benefit arising – using the M x R formula below:
M is the number of business miles travelled by the employee (not as a passenger) using the kind of vehicle in question, in the tax year; and R is the rate applicable for that kind of vehicle.
The rates are as follows: First 10k miles Above 10k miles
Cars and vans 45p 25p
Motor cycles 24p 24p
Cycles 20p 20p
So, for example if you did 12,000 business miles in a car in a given tax year you could reclaim back £5,000 in business mileage – (10k miles x 45p) + (2k miles x 25p). You will need to maintain a mileage record and petrol receipts to back up any claim that you make.
Business mileage extras
These payments are deemed to include the cost of fuel, insurance, wear and tear, etc – so no further claim can be made for these costs. These rates may alter in the future subject to budget announcements.
An additional 5p per mile can be claimed by the employee if they are carrying a work-related passenger, although this amount is not reportable to HMRC.
If the employer repays mileage costs at less than the rates above, then the employee can claim the difference back from HMRC, known as ‘mileage allowance relief’ via their personal self-assessment tax return.
Please note that these examples relate to mileage and fuel only. If the business provides a vehicle for private use to its staff, then that is a separate taxable benefit, and the tax payable on that varies from type and cost of vehicle.
If you are unsure of what you are allowed and not allowed to claim then get in touch with your accountant on the details above.