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If you're setting up your company expense policy, it's important to consider which categories to reimburse. One category that's often overlooked is company mileage allowances.
These allowances apply for work-related trips made by employees in their own vehicles.
The good news is that a certain 'approved amount' of Mileage Allowance Payments (MAPs) can be paid out without having to be reported to the tax authority. This is meant to offer an economical way for businesses to invest in the travels of employees who use their personal vehicle.
But how do you define mileage allowance payments for your company?
In this article, we'll explore what HMRC mileage allowance payments are, when business journeys qualify for tax-free mileage allowances, the HMRC mileage rates for 2024, and how to keep track of company mileage allowances. We'll also answer some frequently asked questions on expenses related to the business usage of personal vehicles.
If your employees use their own vehicles for business use, you can reimburse them for the business expenses that come from using their private cars. This tax-free reimbursement is called mileage allowance.
HMRC has created a scheme called Mileage Allowance Payments (MAPs) to simplify this matter. Without MAPs, companies would need to quantify how much wear and tear each private car has undergone, and add this to petrol costs, road tolls, and more. Instead of this lengthy process, mileage reimbursement uses a flat rate calculated per mile.
Approved mileage rates (AMRs) are the rates that HMRC considers reasonable for employers to pay their employees for using their own vehicles for business travel. The current AMR for cars and vans is 45p per mile for the first 10,000 miles. After that, the rate drops to 25p per mile.
If you're an employee who uses your own vehicle for business travel, you may be able to claim tax relief on the cost of your mileage. To qualify for HMRC compliant mileage allowances, your business journeys must meet the following conditions:
However, there are several scenarios where you cannot claim tax-free mileage allowances. These include:
It's important to note that if you're self-employed, different rules apply, and you may be able to claim mileage deductions as a business expense on your self-assessment tax return. As an employer, you may also be required to report mileage payments to HMRC and deduct and pay tax through PAYE and Class 1 National Insurance.
For the 2023/2024 tax year, the HMRC mileage rates for business mileage are as follows:
It’s important to note that if the company doesn’t cover the full ‘approved amount’, your employees can apply to get Mileage Allowance Relief for the unpaid part.
If you have a hard time calculating how much you can save on taxes, check out HMRC's official working sheet for the right mileage allowances.
The HMRC considers the first 10,000 miles in a tax year to bear a higher cost due to the depreciation of the vehicle, maintenance costs and running costs. Therefore, after the first 10,000 miles (i.e. the 10,000 mile threshold), the employer pays less due to these decreases in these vehicle costs.
An HMRC mileage rate is based on the total amount travelled per employee, not per car. Therefore, if an employee uses multiple cars throughout the year, you still look at their total miles travelled.
Similarly, if an employee uses one car and one motorcycle, you still add the total business miles travelled between the two. Then, the employer reimburses the employee at the appropriate advisory rate for each business mile, based on the number of miles travelled.
If fellow employees travel together for work trips, you can provide an extra 5p per mile to the driver. This payment only applies if the passenger is also travelling for business and is an employee of the company. These payments are "approved" and do not need to be reported to HMRC.
Here are a few added extras to keep in mind when calculating company mileage payments:
If you use your own vehicle for business purposes, you may be able to claim back some of the expenses incurred. However, you need to accurately track mileage for all business-related journeys to be eligible for reimbursement. You can use a log book, a GPS system, or a mileage calculator to keep track of your mileage.
To ensure that you don't miss out on any tax refunds, use a mileage log book to record all journeys you make for business purposes. Make sure your detailed logs contain the following information for each journey:
You need to keep these HMRC compliant mileage logs for at least five years after the yearly tax submission date. The HMRC may request these logs during an inspection, so it is crucial to keep them up-to-date and organised.
If you use toll roads or bridges during your business travel, you can claim these expenses as well. Keep your receipts and records of these payments as they will be required as proof of your expenses.
If you have any questions about mileage claims, you can refer to the HMRC website for detailed information on business travel expenses, mileage claims, and records.
If you manage a large number of employees or your employees frequently use vehicles for work purposes, you may consider using a centralised platform such as ExpenseOnDemand to automatically track mileage allowances and general travel spending.
Using expense management software can significantly simplify mileage tracking and reimbursements. For example, with ExpenseOnDemand, employees can easily track mileage expenses by inputting the starting and ending odometer readings. The system will then calculate the distance travelled and determine the appropriate reimbursement amount.
Using expense management software can also help employers stay compliant with HMRC regulations. With customised approval workflows, it's easy for managers to approve mileage allowance and make sure they are compliant with tax limits. ExpenseOnDemand also aggregates all your travel expenses into a comprehensive report to can be easily reviewed to ensure compliance
HMRC defines business mileage as the distance travelled by an employee for work-related purposes, which includes travelling to different work locations, meetings, and training sessions. However, commuting from home to work is not considered valid tax relief purposes.
If you're new to the concept of mileage allowance for using your own car, you may be confused by what qualifies as “travel for business purposes”.
Commuting is defined as travel between home and a permanent workplace. Although you are commuting to work, this is not considered travel for a business purpose. Business mileage allowance is for travel for business purposes, excluding regular commutes.
The HMRC's 45p per mile allowance includes fuel costs, insurance, road tax, and general maintenance of the vehicle. However, any expenses that are not related to the business mileage, such as parking charges or fines, are not included.
To calculate the amount you are eligible to claim for mileage allowance, you need to multiply the number of business miles travelled by the approved mileage rate.
For example, if you have travelled 100 business miles, you can claim £45 (100 miles x 45p per mile). However, if you have travelled more than 10,000 business miles in a year, the approved mileage rate drops to 25p per mile, which means you can claim £25 (100 miles x 25p per mile).
The mileage rate for the current tax year remains the same as the previous year. The HMRC sets the mileage rate every year, and it is updated on the gov.uk website. It is essential to check the latest rates before making any claims.
To claim mileage allowance relief from HMRC, you need to keep a detailed log of your business mileage and the expenses incurred. You can claim tax relief through your employer or by self-assessment. You need to provide evidence of the business mileage travelled, such as a HMRC compliant logbook or receipts for fuel costs.
The company car mileage rate is different from the standard mileage allowance. It includes the cost of the vehicle, such as lease payments, depreciation, and maintenance. The company car mileage rate is also based on the CO2 emissions of the vehicle. It is subject to change every year.
If you are using a company car for business purposes, you should check with your employer about the mileage rate and any expenses you can claim.
ExpenseOnDemand is a leading expense management software in today's market. It offers a cloud-based solution known for its comprehensive capabilities. Featuring a user-friendly interface, ExpenseOnDemand excels with its mileage tracking feature, ensuring compliance with HMRC regulations.
Moreover, transactions exceeding £10,000 are automatically handled. The platform’s pricing structure is flexible, with three segments catering to various user requirements. From thorough implementation for seamless setup to cost-efficient plans accommodating both casual and power users, ExpenseOnDemand provides value and scalability for businesses of all sizes.
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