Mileage vs car allowance - HMRC point of view?
Discussion
Having some discussions at work about what both of these allowance cover.
I am specifcally looking for the HMRC point of view, rather than what the company think, as I believe the HMRC point of view relates more to my tax return that what my company "thinks".
My understanding is
Mileage allowance - to cover costs/expenses incurred in using our
own cars for business, petrol, depreciation, tax, insurance, maintenance etc.
Car allowance - to cover funding of the car purchase and once the car has
been paid for to build up deposit for next car.
Company's understanding
mileage allowance - just for petrol
car allowance - to cover everything else.
This CAN'T be right, because
a) when I used the "exact" method of calculating expenses, I was able to claim for petrol, depreciation, tax, insurance, maintenance etc.
b) we all get the same car allowance, but do different mileages
c) I'm taxed at highest marginal rate on my car allowance, whereas the mileage allowance is a tax-free allowance.
We get 20p per mile so I know that we are able to claim relief on the "missing" 20p (up to the HMRC AMAP for the first 10,000 miles) in our tax returns.
I've trawled the HMRC website but cannot find the definitions I am looking for.
TIA for any help,
Steve
I am specifcally looking for the HMRC point of view, rather than what the company think, as I believe the HMRC point of view relates more to my tax return that what my company "thinks".
My understanding is
Mileage allowance - to cover costs/expenses incurred in using our
own cars for business, petrol, depreciation, tax, insurance, maintenance etc.
Car allowance - to cover funding of the car purchase and once the car has
been paid for to build up deposit for next car.
Company's understanding
mileage allowance - just for petrol
car allowance - to cover everything else.
This CAN'T be right, because
a) when I used the "exact" method of calculating expenses, I was able to claim for petrol, depreciation, tax, insurance, maintenance etc.
b) we all get the same car allowance, but do different mileages
c) I'm taxed at highest marginal rate on my car allowance, whereas the mileage allowance is a tax-free allowance.
We get 20p per mile so I know that we are able to claim relief on the "missing" 20p (up to the HMRC AMAP for the first 10,000 miles) in our tax returns.
I've trawled the HMRC website but cannot find the definitions I am looking for.
TIA for any help,
Steve
A car allowance is basically salary with strings attached by your employer (and co-incidentally it's not valid for pensions calcs!). HMR&C will tax it just like normal salary, they don't much care.
"Mileage" is to cover petrol AND accelerated wear-and-tear, and has official HMR&C rules. Unless you've a company car in which case you get reduced mileage.
Some employers pay a reduced rate to those with a car allowance, some don't. The revenue still permit 40ppm to be paid, which means with a car allowance you can claim tax relief on the difference between what you DO get paid and the 40p.
"Mileage" is to cover petrol AND accelerated wear-and-tear, and has official HMR&C rules. Unless you've a company car in which case you get reduced mileage.
Some employers pay a reduced rate to those with a car allowance, some don't. The revenue still permit 40ppm to be paid, which means with a car allowance you can claim tax relief on the difference between what you DO get paid and the 40p.
Coming back to this one again - whilst I await a call back from the Tax Office - PH will probvably be quicker ;-)
HMR&C booklet 480 Expenses and Benefits page Chapter 16 page 35 16.3 gives a list of items that the mileage allowance is to cover
"fuel,servicing, tyres, road fund licence, insurance and depreciation), plus interest on any loan to buy the vehicle".
Is this what the allowance has to LEGALLY cover, or is it more of a suggestion?
What if the company says that their MILEAGE ALLOWANCE is only to cover fuel costs, as the employess are paid a "CAR ALLOWANCE" that will cover the other items on the list apart from fuel.
(This is where the car allowance is in effect treated and taxed as extra salary, and from HMRC point of view is not, I guess, even related to a car).
Is this an "issue" for HMRC, or just in my mind???
To my mind this is wrong, as the mileage rate we get is 20p per mile, and so can claim back TAX on the "missing" 20p compared to the AMAP - by indicating that the car allowance is to pay for this, surely I'm being stitched up as this is money that has been taxed that I can't claim back the tax on.....????
The race is on PH v HMRC - who do YOU think will win???
Cheers,
Steve
HMR&C booklet 480 Expenses and Benefits page Chapter 16 page 35 16.3 gives a list of items that the mileage allowance is to cover
"fuel,servicing, tyres, road fund licence, insurance and depreciation), plus interest on any loan to buy the vehicle".
Is this what the allowance has to LEGALLY cover, or is it more of a suggestion?
What if the company says that their MILEAGE ALLOWANCE is only to cover fuel costs, as the employess are paid a "CAR ALLOWANCE" that will cover the other items on the list apart from fuel.
(This is where the car allowance is in effect treated and taxed as extra salary, and from HMRC point of view is not, I guess, even related to a car).
Is this an "issue" for HMRC, or just in my mind???
To my mind this is wrong, as the mileage rate we get is 20p per mile, and so can claim back TAX on the "missing" 20p compared to the AMAP - by indicating that the car allowance is to pay for this, surely I'm being stitched up as this is money that has been taxed that I can't claim back the tax on.....????
The race is on PH v HMRC - who do YOU think will win???
Cheers,
Steve
PH, of course.
I think I covered this above - 'car allowance' is basically employer-speak for salary which isn't eligible for pension contributions (saves the e'er money), and an excuse to pay a lower mileage rate.
HMR&C don't care if you get a car allowance or not - if it's a private car they deem you can be paid 40ppm without penalty, so you can claim the tax back on the difference* regardless.
I think I covered this above - 'car allowance' is basically employer-speak for salary which isn't eligible for pension contributions (saves the e'er money), and an excuse to pay a lower mileage rate.
HMR&C don't care if you get a car allowance or not - if it's a private car they deem you can be paid 40ppm without penalty, so you can claim the tax back on the difference* regardless.
- Also triangulation - if you do work-client-home, you can claim ALL of the second and third legs from HMR&C, even if your employer's rules will only let you claim the difference. Tax relief on completely unpaid miles is a lot more lucrative than just the difference between e.g. 25ppm and 40ppm!
havoc said:
PH, of course.
I think I covered this above - 'car allowance' is basically employer-speak for salary which isn't eligible for pension contributions (saves the e'er money), and an excuse to pay a lower mileage rate.
HMR&C don't care if you get a car allowance or not - if it's a private car they deem you can be paid 40ppm without penalty, so you can claim the tax back on the difference* regardless.
How do you go about claiming the difference back in tax rebates? I think I covered this above - 'car allowance' is basically employer-speak for salary which isn't eligible for pension contributions (saves the e'er money), and an excuse to pay a lower mileage rate.
HMR&C don't care if you get a car allowance or not - if it's a private car they deem you can be paid 40ppm without penalty, so you can claim the tax back on the difference* regardless.
- Also triangulation - if you do work-client-home, you can claim ALL of the second and third legs from HMR&C, even if your employer's rules will only let you claim the difference. Tax relief on completely unpaid miles is a lot more lucrative than just the difference between e.g. 25ppm and 40ppm!
Havoc, thanks for the reply. You were right - PH is way faster than the tax office 
I'm comfortable with the "car allowance" bit just being extra salary, and taxed as such.
The real question is can the employer "get away" with paying a mileage allowance based on them saying it is JUST for petrol and the other associated "costs" (insurance, servicing, depreaciation, load interest etc) are to be paid for from the car allowance?
Obviously if they are olny considering PETROL costs then this will give a lower amount than if they consider the other items on the list.
Is that list that HMRC give the LAW or is it just a SUGGESTION??
I know there's a question in there somewhere but just having trouble articulating it, I think!
Also interested in that other bit about claiming legs 2 and 3 of your example :-) and will give the tax office a bash at that one as well - if they come back to me.
Steve
I'm comfortable with the "car allowance" bit just being extra salary, and taxed as such.
The real question is can the employer "get away" with paying a mileage allowance based on them saying it is JUST for petrol and the other associated "costs" (insurance, servicing, depreaciation, load interest etc) are to be paid for from the car allowance?
Obviously if they are olny considering PETROL costs then this will give a lower amount than if they consider the other items on the list.
Is that list that HMRC give the LAW or is it just a SUGGESTION??
I know there's a question in there somewhere but just having trouble articulating it, I think!
Also interested in that other bit about claiming legs 2 and 3 of your example :-) and will give the tax office a bash at that one as well - if they come back to me.
Steve
HMRC have been thinking of clamping down on this for a few years. The 40p/25p allowance (used to be called FPCS) is for running a private vehicle for business purposes. But companies are paying people car allowances, then paying them Xp per mile for fuel, allowing them to claim the difference from HMRC. HMRC are then thinking that those people have got two lots of 'car allowance' -- one from the reclaimed tax on the Xp per mile and the other for the actual allowance. Personally I don't see the problem as the car allowance itself (i.e. your £X00/month) is fully taxed anyway, so no different from your buying a car out of your salary.
bleesh said:
The real question is can the employer "get away" with paying a mileage allowance based on them saying it is JUST for petrol and the other associated "costs" (insurance, servicing, depreaciation, load interest etc) are to be paid for from the car allowance?
Obviously if they are olny considering PETROL costs then this will give a lower amount than if they consider the other items on the list.
Is that list that HMRC give the LAW or is it just a SUGGESTION??
Steve
Your employer isn't "getting away" with anything. The same mileage allowance could be paid to someone who doesn't get a car allowance. What you are reimbursed is down to the generosity, or otherwise, of your employer, just like unpaid overtime....Obviously if they are olny considering PETROL costs then this will give a lower amount than if they consider the other items on the list.
Is that list that HMRC give the LAW or is it just a SUGGESTION??
Steve
The amount your employer pays you by way of salary, car allowance, call it what you will, is down to the contract agreed between yourselves. The mileage allowances suggested by the revenue are maximum tax free amounts, not the universal amount that must be charged.
bleesh said:
Havoc, thanks for the reply. You were right - PH is way faster than the tax office
I'm comfortable with the "car allowance" bit just being extra salary, and taxed as such.
The real question is can the employer "get away" with paying a mileage allowance based on them saying it is JUST for petrol and the other associated "costs" (insurance, servicing, depreaciation, load interest etc) are to be paid for from the car allowance?
Obviously if they are olny considering PETROL costs then this will give a lower amount than if they consider the other items on the list.
Is that list that HMRC give the LAW or is it just a SUGGESTION??
I know there's a question in there somewhere but just having trouble articulating it, I think!
Also interested in that other bit about claiming legs 2 and 3 of your example :-) and will give the tax office a bash at that one as well - if they come back to me.
Steve
Yes they can get away with it - they can pay you 10ppm if they want to, but they'd have to pay all employees the same, and as it's tax-free income, most employers usually pay a sensible but not generous level.I'm comfortable with the "car allowance" bit just being extra salary, and taxed as such.
The real question is can the employer "get away" with paying a mileage allowance based on them saying it is JUST for petrol and the other associated "costs" (insurance, servicing, depreaciation, load interest etc) are to be paid for from the car allowance?
Obviously if they are olny considering PETROL costs then this will give a lower amount than if they consider the other items on the list.
Is that list that HMRC give the LAW or is it just a SUGGESTION??
I know there's a question in there somewhere but just having trouble articulating it, I think!
Also interested in that other bit about claiming legs 2 and 3 of your example :-) and will give the tax office a bash at that one as well - if they come back to me.
Steve
So I wouldn't try anything there.
Claiming back off HMR&C - it's a "s.198 claim" for unreimbursed expenses. I usually just send off a 1-page letter showing:-
mileage claimed @ rate = amount received
mileage done @ 40p = amount claimable
Difference = £x
Tax relief @ (your marginal rate - 20/22/40%) = £y
I've got a spreadsheet at home with all the details, but I've never been asked for it.
I think what you're saying is that you'd prefer if they paid you the 40p/25p per mile (i.e. up to HMRC's limit) and reduced your car allowance so that you pay less tax. Bear in mind, though, that if you suddenly went from doing lots of business mileage to none (commuting from home to a permanent place of work is not business mileage) then 40p a mile * 0 miles = 0.
I agree with what Martin has to say about the HMR&C view on car allowance & business mileage payments.
If you complete a Self Assessment form you can claim the additional mileage due on the employment pages.
I think Martin is a little out of date
with the section you claim under think it is now s336 rather than s198 (if I am wrong I am sure he will be right back ).
If you complete a Self Assessment form you can claim the additional mileage due on the employment pages.
I think Martin is a little out of date
with the section you claim under think it is now s336 rather than s198 (if I am wrong I am sure he will be right back ).neil-f said:
I agree with what Martin has to say about the HMR&C view on car allowance & business mileage payments.
If you complete a Self Assessment form you can claim the additional mileage due on the employment pages.
I think Martin is a little out of date with the section you claim under think it is now s336 rather than s198 (if I am wrong I am sure he will be right back ).
No, you're probably right - not done it for a couple of years now, so it could well have changed - HMR&C aren't known for leaving things alone!If you complete a Self Assessment form you can claim the additional mileage due on the employment pages.
I think Martin is a little out of date
with the section you claim under think it is now s336 rather than s198 (if I am wrong I am sure he will be right back ).Cheers for the update Neil.
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