As an employee using your own vehicle for work, understanding HMRC’s mileage allowance laws and how to apply them is crucial. In this blog post, we will delve into the key aspects of mileage allowance, rates, and taxation, providing clarity for both employees and employers.

At Studholme-Bell, we understand the importance of efficient mileage tracking. That’s why we offer an automated vehicle log book solution, allowing you to save time and focus on more engaging tasks while we take care of your mileage tracking needs.

If you are self-employed, we have a dedicated guide on mileage allowance specifically tailored for you. Feel free to check it out!

HMRC Mileage Allowance Rules: What You Need to Know

If you use your private vehicle for business purposes, you are eligible to receive Mileage Allowance Payments (MAPs) from your employer to cover your mileage expenses. These payments can be structured in various ways:

• Monthly payment based on a per-mile rate for your business mileage.
• Monthly payment based on a reasonable business mileage estimation.
• Monthly lump sum to cover vehicle costs, calculated based on reasonable estimates of your business mileage.
• Combination of the above, such as a monthly lump sum for vehicle expenses along with a fuel rate per mile at a lower reimbursement amount.

What is Covered by Mileage Allowance?

Allowance payments are designed to cover various vehicle expenses, including fuel, vehicle maintenance, depreciation, insurance, and road tax. However, it’s important to note that tolls, parking fees, congestion charges, and fines for road offences are not included in the mileage allowance.

Understanding HMRC Mileage Allowance Rates

HMRC provides Advisory MAP (AMAP) amounts for employers, which are not obligatory. The rate at which your employer chooses to reimburse you may vary, and this information is typically outlined in your employment contract.

Currently, the advisory allowance rates per mile are as follows:

• 45p for cars and vans for the first 10,000 miles. After 10,000 miles, the rate changes to 25p per mile.
• 24p for motorcycles, regardless of the number of miles driven.
• 20p for bicycles, regardless of the distance covered.

Mileage Allowance Relief

If you are paid the advisory rates set by HMRC, it is considered an “approved amount.” However, if your employer reimburses you at a lower rate, you may be entitled to Mileage Allowance Relief (MAR) and potential tax relief. MAR is a tax-free allowance for business travel, and it is based on the difference between the approved rate and your employer’s reimbursement rate.

Proving Business Mileage and Receiving MAP

To receive Mileage Allowance Payments (MAP), employees must provide evidence of business mileage to their employers. This can be accomplished by maintaining a detailed mileage log, which should include:

• Date and purpose of each trip
• Distance traveled
• Start and end addresses of work-related journeys (including postcodes)

Recording this information accurately is crucial, as it serves as evidence of the business mileage driven. By encouraging employees to maintain comprehensive mileage logs, you can ensure the accuracy of their claims.

Calculating the Mileage Allowance

The HMRC-approved allowance rates determine the reimbursement employees are entitled to. Typically, the reimbursement is calculated by multiplying the business miles driven by the employer’s mileage rate. For instance, if an employee has driven 500 miles in a month and the approved rate is 45p per mile, the reimbursement can be calculated as follows:

500 miles x £0.45 = £225

Tax Implications 

Understanding the tax implications of mileage allowance is crucial for both employers and employees. Here’s a breakdown of how it works:

• Mileage Allowance at Approved Amount: If employees are reimbursed precisely at the approved mileage amount, the sum is tax-free for both parties, and no declaration is required.
• Mileage Allowance Below the Approved Amount: When employees are reimbursed at a rate lower than the approved mileage amount, the remaining entitlement can be claimed as Mileage Allowance Relief (MAR). This allows employees to recoup the difference and reduce their taxable income.
• Mileage Allowance Above the Approved Amount: If employers choose to reimburse employees at a higher rate than the HMRC-approved mileage allowance, the excess amount is considered a personal benefit and is subject to income tax through PAYE.

National Insurance Scheme and Relevant Motoring Expenditures

In addition to tax considerations, accountants should be aware of the National Insurance (NI) scheme and relevant motoring expenditures (RMEs) associated with mileage allowance. RMEs include:

• Mileage Allowance Payments
• Payments made on behalf of employees for vehicle maintenance
• Other payments related to the business use of vehicles

The NI scheme imposes a “Qualifying Amount” that determines whether the RMEs are subject to Class 1 National Insurance contributions. The qualifying amounts for cars, vans, motorcycles, and bicycles are specified by HMRC.

Keeping Track of Your Mileage

There are a few options available to track your mileage, such as using a manual log book, a spreadsheet, or an automatic digital tracker. If you prefer the traditional approach, you can manually record your business trips on paper or a digital spreadsheet. However, this method can be time-consuming, particularly if you travel frequently for work. You can find paper logbooks at various newsagents and stores.

Alternatively, you can opt for automatic mileage tracking by using a mileage tracker app. There are several user-friendly options available for both iOS and Android devices. These apps utilise GPS technology to automatically track your mileage while you’re on the road. Our recommended app, Driversnote, not only helps you keep track of your business travel but also generates HMRC compliant mileage reports. By choosing an app, you can eliminate the hassle of manually inputting information and ensure that your records are accurate.

Managing mileage allowance is a crucial aspect of financial management for any business. By understanding the reimbursement options, knowing the applicable tax regulations, and utilising effective mileage tracking methods, you can optimise your mileage allowance and ensure compliance with HMRC guidelines.

If you’re looking for expert advice and assistance in managing your mileage allowance, our team of experienced accountants is here to help. Contact us today to learn more about how we can support your business’s financial needs.

You can call us on 01257 241 111
Or email us at info@studholme-bell.com