Company vs HRMC mileage rates

[anonymous-user]

If you use your own private car for a limited amount of business use for the company you work for, for the first 10,000 miles HMRC now allows you to be recomensed 45p a mile http://www.hmrc.gov.uk/rates/travel.htm
If an employer pays less than that rate, can you claim the difference back from HMRC?

[Eric Mc]

Yes.

Although HMRC don't pay you the full amount claimed. What they do is allow the difference to be claimed from them as a form of tax relief.

An example.

HMRC allows up to 45p per mile.

Your employer pays 30p per mile.

You can make a claim from HMRC for the additional 15p per mile.

You drove 10,000 business related miles in the year. The claim from HMRC is 10,000 x 15p - £1,500

You pay Income Tax at 20%. HMRC will refund you £300 (1,500 at 20p)

If you are a higher rate tax payer, you will be refunded £600 (1,500 @ 40p)

[anonymous-user]

Thanks for the reply Eric.
If you are PAYE what would the process to claim the difference back be?
I'm guessing done at the end of the tax year, but what would you have to provide to HMRC?

[Deva Link]

guy_spyder550 said:

Thanks for the reply Eric.
If you are PAYE what would the process to claim the difference back be?
I'm guessing done at the end of the tax year, but what would you have to provide to HMRC?

http://www.hmrc.gov.uk/forms/p87.pdf

Keep decent records (diary etc) of the journey and what its purpose was for 6 years.

[Eric Mc]

If you are a basic rate taxpayer onl;y, then a P87 is the easiest solution.

If you are a higher rate taxpayer with sources of income outside your employment - such as dividends and/or bank intetrest, then you should seriously consider completing a Self Assessment tax return each year.

[sanf]

Eric Mc said:

Yes.

Although HMRC don't pay you the full amount claimed. What they do is allow the difference to be claimed from them as a form of tax relief.

An example.

HMRC allows up to 45p per mile.

Your employer pays 30p per mile.

You can make a claim from HMRC for the additional 15p per mile.

You drove 10,000 business related miles in the year. The claim from HMRC is 10,000 x 15p - £1,500

You pay Income Tax at 20%. HMRC will refund you £300 (1,500 at 20p)

If you are a higher rate tax payer, you will be refunded £600 (1,500 @ 40p)

That's a really interesting reply. I knew about the claiming back the extra bit but not how it is offset. Can you fill in some of the thought processes here, sorry I may be just being thick....

Expenses are not classed as income ( I think) so you pay no tax - hence if you have an employer paying £0.45p per mile and do 10,000 miles in a year you would claim - £4,500 in expenses to pay for your fuel and running of the car.

But based on the above - if your employer pays £0.30p - you get £3,000 in expenses. So your £1500 down against the HMRC guidelines. But when you submit the difference of £1500 you will only get back £300 or £600 depending on your tax banding.

That seems a bit harsh, I always thought they just took the £1500 off your tax code

Sorry if I'm missing the obvious....

[ellroy]

They do effectively take it off your tax code, either as adjustment or paying you the few hundred quid.

If you get an extra £1,000 allowance, and are in the 40% tax bracket, then you are only saving £400 on the top end of the tax you would otherwise have paid.

[Eric Mc]

Exactly,

An increase in your tax allowance to reflect the mileage claim you made to HMRC in respect of the previous tax year does exactly what I described in my example, it reduces your tax bill by the mileage amount at your top rate of tax.

[Deva Link]

sanf said:

Expenses are not classed as income ( I think) so you pay no tax - hence if you have an employer paying £0.45p per mile and do 10,000 miles in a year you would claim - £4,500 in expenses to pay for your fuel and running of the car.

But based on the above - if your employer pays £0.30p - you get £3,000 in expenses. So your £1500 down against the HMRC guidelines. But when you submit the difference of £1500 you will only get back £300 or £600 depending on your tax banding.

The thinking is that regular car users normally get a fixed monthly car allowance. You pay tax on that at your normal rate, but then get a smaller rate per business mile, maybe 15p.

Claiming the tax back up to the HMRC 45p rate is basically getting you back the tax you paid on your allowance, leaving you with the 15p (or whatever) to cover fuel.


Less regular users, who don't get a fixed monthly allowance, usually get the full HMRC rates anyway.

[Rambaud]

A lot of Car Allowance schemes would benefit from re-drafting - not only for the employee but the employer also.

This is particularly significant for employees doing even quite low business mileage - e.g. 10,000 miles = £4500 p.a. free from Income Tax & NI.

[Toro Rosso]

sanf said:

That's a really interesting reply. I knew about the claiming back the extra bit but not how it is offset. Can you fill in some of the thought processes here, sorry I may be just being thick....

Expenses are not classed as income ( I think) so you pay no tax - hence if you have an employer paying £0.45p per mile and do 10,000 miles in a year you would claim - £4,500 in expenses to pay for your fuel and running of the car.

But based on the above - if your employer pays £0.30p - you get £3,000 in expenses. So your £1500 down against the HMRC guidelines. But when you submit the difference of £1500 you will only get back £300 or £600 depending on your tax banding.

That seems a bit harsh, I always thought they just took the £1500 off your tax code

Sorry if I'm missing the obvious....

Not really, as it is not their problem your employer is tight! Expenses payments are between you and your employer (via employment contracts etc) to agree on. HMRC can't be expected to pick up the tab - they just offer tax relief on the amount you could have received free of tax and NI