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Employee mileage allowances

Newsletter issue - April 2019.

Confusion often arises over differing tax treatment of mileage allowances paid to employees using their own cars for business, and those provided with a company car.

An employee using their own car for work can claim a mileage allowance from their employer, which is designed to cover the costs of fuel and wear and tear for business trips. 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

Motor cycles: 24p per mile

Bicycles: 20p per mile

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 will be taxable, 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 at https://www.gov.uk/government/publications/advisory-fuel-rates.

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.

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