Business Mileage Rates: HMRC Allowances and Eligibility

If you use your own vehicle for business purposes, you may be able to claim mileage expenses from HM Revenue & Customs (HMRC). This applies to employees, self-employed individuals, and limited company directors. It’s crucial to understand the rules and regulations surrounding business mileage rates to ensure correct claims. For more detailed information on tax obligations, especially for freelancers, see Are you a freelance on the side? Do you know what tax should you pay?.

HMRC mileage rates change annually. The current rates for various vehicles are detailed in our section on HMRC Mileage Rates and Allowances. Accurate record-keeping of your business mileage is essential. To learn who can claim business mileage, refer to Business Mileage: Who Can Claim?.

Definition of Business Mileage

Business mileage refers to the distance you travel for work-related purposes using your own vehicle. This includes travelling to meetings, visiting clients, and any other business-related journeys. The mileage can be claimed as an expense, which can help reduce your tax bill.

Difference Between Business and Private Travel

It is important to understand the difference between business and private travel to ensure that you only claim for business mileage. Business travel is any journey made for work-related purposes, while private travel is any journey made for personal reasons. Commuting from your home to your regular place of work is not considered business travel and cannot be claimed as an expense.

To differentiate between business and private travel, you need to keep an accurate record of your journeys. This includes the date of the journey, the start and end locations, the reason for the journey, and the distance traveled. You can keep a logbook or use a mileage tracking app to record your journeys.

Eligibility for Claiming Mileage Rates

Eligibility criteria for claiming mileage rates vary depending on your employment status. As an employee, you can claim business mileage rates if you use your personal vehicle for business purposes. For self-employed individuals, maintaining accurate records of business mileage is necessary. Directors and partners in limited companies also have specific criteria to follow.

For employees using personal vehicles for business, the reimbursement approach by the employer is a key factor. If your employer reimburses you at or below the HMRC approved mileage rates, you do not need to report this on your tax return. However, if the reimbursement is higher than the approved rate, the excess amount is taxable.

For specific scenarios, such as freelancing during furlough or working under IR35, see Can I freelance whilst on furlough? and Can IR35 contractors still work limited company?.

HMRC Mileage Rates and Allowances

If you use your personal vehicle for business purposes, you can claim business mileage expenses from HM Revenue and Customs (HMRC). HMRC mileage rates are the amount you can claim per mile for using your vehicle for business purposes. These rates are crucial for anyone using their personal vehicles for work-related travel, as they determine the amount that can be claimed back as expenses.

Current Rates for Cars and Vans

For cars and vans, HMRC mileage rates are set at 45p per mile for the first 10,000 miles. After 10,000 miles, the amount that businesses can claim back drops to 25p per mile. These rates apply to both petrol and diesel cars. If you drive an electric car, the mileage rate is 4p per mile. This distinction is important for users of different vehicle types to calculate their claims accurately.

Rates for Motorcycles and Bicycles

For those using a motorcycle for business purposes, the HMRC mileage rate is 24p per mile. For bicycles, the rate is 20p per mile. These rates ensure that users of all types of vehicles are accommodated in the mileage claims process.

Understanding Advisory Fuel Rates

Advisory Fuel Rates (AFRs) are set by HMRC for reimbursing employees for fuel expenses. These rates, based on average fuel prices in the UK, are updated quarterly. AFRs are used when reimbursing employees for the fuel used for business travel in company cars, or when employees pay for their own fuel and claim it back from their employers. Understanding these rates is essential for both employers and employees to manage fuel expense claims effectively.

For insights into company car taxation and IR35 changes, see Company Car Taxation and IR35 Off-Payroll Working Rules.

In conclusion, being knowledgeable about HMRC mileage rates and allowances is important for anyone using their personal vehicle for business purposes. By understanding the current rates for cars and vans, motorcycles and bicycles, and advisory fuel rates, you can ensure that you claim the correct amount of expenses and avoid any potential issues with HMRC.

Claiming Mileage Allowance

If you use your own vehicle for business purposes, you may be eligible to claim mileage allowance from HM Revenue and Customs (HMRC). Understanding how to properly claim this allowance is important to ensure you’re fully reimbursed for your business travel expenses.

Mileage Allowance Payments (MAPs)

MAPs are reimbursements made to employees who use their personal vehicles for business purposes. The current MAP rate for cars and vans is 45p per mile for the first 10,000 miles in a tax year, and 25p per mile thereafter. For motorcycles, the rate is 24p per mile, and for bicycles, it’s 20p per mile. If your employer reimburses you at a rate less than the MAP rate, you’re entitled to claim the difference as tax relief from HMRC.

Mileage Allowance Relief (MAR)

Should you find that your employer’s reimbursement is below the MAP rate, you can claim Mileage Allowance Relief (MAR) from HMRC. This relief can be claimed through your Self Assessment tax return or by using form P87. Notably, MAR can be claimed retrospectively for up to four years from the end of the tax year in which the business travel occurred.

Record Keeping and Proof

Maintaining accurate records is critical for claiming mileage allowance. You should document details of your business journeys, including dates, start and end locations, purposes of the trips, and the total miles traveled. This information can be recorded in a variety of ways, such as in a logbook, a spreadsheet, or through a mileage tracking app. It’s also important to keep proof of your travel expenses, like fuel receipts or invoices for vehicle repairs. HMRC may ask to review these records and proofs of expenses, so keeping them organised and up-to-date is essential.

For more in-depth information on record-keeping and managing related expenses, refer to Company Year-End Accounts Checklist and Claiming back the VAT on Accountancy Fees.

Tax Considerations and Relief

If you use your own vehicle for business purposes, you may be entitled to claim tax relief on the expenses you incur. This section outlines the tax considerations and relief available to you for business mileage.

Tax Relief on Business Mileage

HMRC sets the approved mileage rates for businesses to use as a guideline for reimbursing employees for business travel expenses. In the current tax year, the rate is 45p per mile for the first 10,000 miles, and 25p per mile thereafter.

If your employer reimburses you at a rate that is less than the approved mileage rate, you can claim the difference as tax relief. If your employer reimburses you at a rate that is higher than the approved mileage rate, the excess is taxable and should be reported on your P11D form.

Impact on Taxable Profit and National Insurance

If you are self-employed, you can claim the cost of business mileage as an allowable expense against your profits. This means that the cost of business mileage reduces the amount of taxable profit you have to pay tax on, and can therefore reduce your tax bill.

If you are an employer, the cost of reimbursing employees for business mileage is tax-deductible and can reduce your taxable profits. However, you will need to pay Class 1A National Insurance contributions on any excess mileage payments you make to your employees.

Completing Your Tax Return

If you are an employee who has been reimbursed for business mileage by your employer, you do not need to include this amount on your tax return. However, if you have claimed tax relief on business mileage, you will need to include this amount on your tax return.

If you are self-employed, you will need to include the cost of business mileage as an allowable expense on your tax return. You will also need to keep accurate records of your business mileage, including the date, purpose, and distance of each journey.

In summary, claiming tax relief on business mileage can help to reduce your tax bill. However, it is important to ensure that you follow the guidelines set out by HMRC, and keep accurate records of your business mileage.

Additional Considerations for Employers

When it comes to business mileage rates, employers have several additional considerations to keep in mind. In this section, we’ll cover some of the key things you need to know as an employer.

Reimbursing Employee Travel

If you require your employees to travel for business purposes, you may need to reimburse them for their travel expenses. One common approach is to use HMRC’s approved mileage rates, which are updated annually. You can find the current rates on the gov.uk website.

It’s worth noting that if you pay your employees less than the approved mileage rates, they may be able to claim back the difference from HMRC at the end of the tax year. So, it’s important to ensure that you are paying your employees the correct amount.

Reporting and Deductions

If you reimburse your employees for business travel expenses, you may need to report the payments to HMRC and deduct and pay tax. The rules around this can be complex, so it’s important to seek professional advice if you’re unsure.

One thing to be aware of is that if you pay your employees more than a certain amount, you’ll need to report the payments on a P11D form. This form is used to report expenses and benefits to HMRC. You can find more information about P11D forms on the gov.uk website.

Company Car and Fuel Benefits

If you provide your employees with a company car, or pay for their fuel, there are additional tax implications to consider. HMRC uses a “car fuel benefit multiplier” to calculate the taxable benefit of providing a company car and paying for fuel.

The multiplier is based on the car’s CO2 emissions and is updated annually. You can find the current rates on the gov.uk website.

It’s worth noting that if you provide your employees with a fully electric car, there is currently no taxable benefit to pay. This may change in the future, so it’s important to keep up to date with the latest guidance from HMRC.

Special Cases and Exceptions

Temporary Workplaces and Commuting

If you have a temporary workplace, you can claim mileage expenses for travelling to and from that workplace. A temporary workplace is a place where you work for less than 24 months. If you work at the same place for more than 24 months, it is no longer considered a temporary workplace, and you cannot claim mileage expenses for commuting to that workplace.

Passenger Payments

If you carry fellow employees in your car or van, you can claim passenger payments. The current rate for passenger payments is 5p per passenger per business mile. You can claim this amount in addition to your own mileage expenses.

VAT and Fuel Costs

If you’re VAT-registered, you can claim back the VAT on fuel costs. However, you can only claim the VAT on fuel that you use for business purposes. You cannot claim the VAT on fuel that you use for personal use.

It’s important to keep accurate records of your mileage and fuel expenses to ensure that you’re claiming the correct amount. HMRC may ask to see your records, so it’s important to keep them up to date. You should also keep receipts and invoices for any fuel costs that you claim back.

Remember, the rules for claiming mileage expenses can be complex, so it’s always a good idea to seek professional advice if you’re unsure.

Calculating and Maximising Claims

Determining the Approved Amount

To calculate your business mileage claims, you need to determine the “approved amount” for your vehicle. The approved amount is the maximum amount you can claim per mile for business travel. The rate per mile varies depending on the type of vehicle and the number of miles driven.

For cars and vans, the approved amount is 45p per mile for the first 10,000 miles and 25p per mile thereafter. Motorcycles have a rate of 24p per mile for the first 10,000 miles and 24p per mile thereafter. Bikes have a rate of 20p per mile for all miles driven.

To determine the number of miles driven for business purposes, you should keep a record of your business mileage. You can do this by keeping a logbook or using a mileage tracking app. HMRC provides a MAPs working sheet to help you calculate the approved amount if you need assistance.

Strategies to Maximise Relief

To maximise your tax relief, you should ensure that you claim for all business mileage. You can claim for travel between different work locations, travel to client meetings, and travel to training courses. However, you cannot claim for commuting to your regular place of work or for any private travel.

In addition, you should ensure that you claim for all allowable expenses related to your business mileage. This includes fuel, parking, and toll charges. You can also claim for the cost of maintaining and repairing your vehicle, but only for the portion of the expenses that relate to business travel.

To ensure that your claims are accurate and maximised, you should keep detailed records of your business mileage and expenses. You should also ensure that you have evidence to support your claims, such as receipts and invoices.

By following these strategies, you can maximise your tax relief and ensure that you are claiming the correct amount for your business mileage.

Practical Tips and Common Pitfalls

Maintaining Accurate Mileage Records

Keeping accurate records of your business mileage is essential if you want to claim mileage expenses. You should record the date, destination, purpose of the journey, and the number of miles travelled. You can use a mileage logbook or a digital app to keep track of your mileage.

Make sure you keep all your receipts and invoices for fuel, repairs, and maintenance. HMRC may ask you to provide evidence of your expenses, so it’s essential to keep accurate records. You should keep your records for at least six years, as this is how long HMRC may ask to inspect them.

Avoiding Common Errors

One of the most common errors when claiming business mileage is not using the correct rates. HMRC sets the approved mileage rates, and they change every year. You should check the current rates before making a claim.

Another common mistake is claiming for non-business mileage. You can only claim for business mileage, which is the distance you travel between different work locations or to visit clients. You cannot claim for commuting to and from your regular place of work.

It’s also important to ensure that your mileage claims are reasonable. HMRC may challenge your claims if they seem excessive or unreasonable. If you’re unsure about what you can claim, you should seek advice from an accountant or tax professional.

In summary, to claim business mileage expenses, you must maintain accurate records, keep all receipts and invoices, use the correct rates, and ensure your claims are reasonable. By following these practical tips and avoiding common pitfalls, you can ensure that your mileage claims are accurate and compliant with HMRC rules.