9 April 2019
There is often confusion over differing tax treatments of mileage allowances paid to employees using their own cars for business and those provided with a company car.
The Approved Mileage Allowance
An employee using their own car for work can claim a mileage allowance for business trips from their employer, which is designed to cover the costs of fuel and wear and tear. 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
- first 10,000 business miles per year – 24p per mile;
- over 10,000 miles – 24p per mile
- first 10,000 business miles per year – 20p per mile;
- over 10,000 miles – 20p per mile
Outside of the Approved Allowance
Unless the employer reimburses employees at a higher rate, the payments can be paid tax-free and do not need to be reported to HMRC. However, anything paid above the approved rates is tax deductible, and must be reported to HMRC 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 NIC, the 45p per mile rate is used for all business miles in the tax year, not just the first 10,000 miles.
The AMAP scheme does not apply for 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 here.
Amounts paid in excess of HMRC’s advisory rates will be taxable.
If the company pays for all fuel (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.
For further information about this topic, please call Beverley Howells on 0191 567 8611 or e-mail firstname.lastname@example.org.
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