Are your clients benefiting from their full mileage allowance?

Taxpayers who use their own vehicle for travel on their employer’s business often miss out on valuable tax reliefs if they are paid low mileage rates.

The relief is quite straight forward, provided the employee has kept records of his business mileage in the year and a record of all reimbursement payments made to him by the employer. To work out how much allowance can be claimed, the business mileage is multiplied by the “approved mileage rates” as follows:

  • 45p per mile for the first 10,000 business miles; and
  • 25p per mile for any business mileage in excess of 10,000 in the year.

The employee can claim tax relief on the difference between these rates and the amount that he actually receives.

As it is common for employers to agree to reimburse their employees for their mileage on company business, but only at a rate designed to cover the costs of fuel, there is often scope for an employee to claim tax back. It is surprising how often we see this being overlooked!

The example below illustrates just how much tax can be saved by simply making the claim, either with the annual self-assessment tax return, or for those who don’t need to complete a tax return, by making a claim to HMRC in writing.

Example

Robin, who received a salary of £70,000 per annum in 2013/14, has worked for his employer since April 2011. His duties require him to regularly attend other company sites and the offices of several key suppliers. The total mileage in his car (2.5 ltr diesel Volvo) for the 2013/14 tax year was 35,000, of which 29,600 was business mileage. The levels of mileage were similar in previous tax years. His employer has reimbursed him for business fuel only at the rate of 17p per mile. As this is below the approved rates, Robin can claim a deduction from his taxable income as follows:

HMRC approved rates

£

10,000 miles at £0.45

4,500

19,600 miles at £0.25

4,900

Deduction available

9,400

Less fuel costs paid by employer at 17p per mile (29,600 x £0.17)

 (5,032)

Mileage claim available

4,368

 

 

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