The subject of allowable mileage rates for tax purposes often causes confusion as different rules apply depending on whether a car is employee or company owned.
Broadly, employees can only claim mileage allowance tax relief where their own vehicle is used for business purposes. If the employee is provided with a company car, a mileage claim can be made for business travel to cover the cost of fuel where this is paid for by the employee. There are different rules if the company pays for the fuel.
Approved mileage allowance payments (AMAPs)
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
- Motorcycles: first 10,000 business miles per year – 24p per mile; over 10,000 miles – 24p per mile
- Bicycles: first 10,000 business miles per year – 20p per mile; over 10,000 miles – 20p per mile
For NIC, the 45p per mile rate is used for all business miles in the tax year, not just the first 10,000 miles.
Actual costs of business journeys made in the employee’s private car cannot be claimed as a deduction by the employee as the legislation specifically prevents this where mileage allowance payments are made to that employee.
AMAPs are designed to cover any general or mileage-related expenses in relation to the car itself (such as fuel, servicing, tyres, road fund licence, insurance and depreciation), plus interest on any loan to buy the vehicle. The employee cannot claim any additional relief for expenses of that type.
AMAPs do not cover other expenses specific to the particular journey (such as parking charges, road tolls or accommodation) and the normal rules for deductions apply to expenses of this type.
Unless the employer reimburses employees at a higher rate than the AMAP rate, the payments do not need to be reported on annual forms P11D as a benefit-in-kind.
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.
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 the employee’s responsibility to claim tax relief due on mileage allowances. Form P87 can be used where an employee is not within self-assessment but has allowable employment expenses of less than £2,500 for a tax year. Current year claims are usually made via the employee’s PAYE tax code. However, employees have four years from the end of the tax year to make a claim for earlier years.