The approved mileage allowance payment (AMAP) for tax and National Insurance purposes for cars and vans increased from 6 April 2011 from 40p per business mile to 45p per business mile with a restriction for the first 10,000 business miles for tax purposes only.
The current tax rates per business mile are:
| Kind of vehicle |
Rate |
| Car or van |
45p for the first 10,000 miles
25p thereafter |
| Motorcycle |
24p |
| Cycle |
20p |
The current National Insurance rates per business mile with no mileage restrictions are:
| Kind of vehicle |
Rate |
| Car or van |
45p |
| Motorcycle |
24p |
| Cycle |
20p |
Employees can also receive a tax free payment for carrying passengers on business journeys in their own car or van at the rate of 5p per mile.
Tax rules - What to report, what to pay
If the MAPs you pay to an employee exceed the approved amount for the tax year, then:
- for company directors or employees earning at a rate of £8,500 or more per year, report the excess amount on form P11D
- for employees earning less than that, you have no reporting requirements
- regardless of the employee's earnings, you have no tax to pay to HMRC
If the MAPs you pay are below the approved amount for the tax year:
- you have no reporting requirements
- you have no tax to pay to HMRC
- your employee will be able to get tax relief (called Mileage Allowance Relief, or MAR) on the unused balance of the approved amount – this can be claimed on the employee’s tax return or by completing Form 87 ‘Tax relief for expenses of employment’.
- you can make separate optional reports to HMRC of any such unused balances under a scheme called the Mileage Allowance Relief Optional Reporting Scheme (MARORS) - contact your HMRC office if you want to enter the MARORS scheme
National Insurance
The rules for National Insurance contributions (NICs) differ from those for tax in a number of ways and take into account a wider range of expenses. NICs are due on payments of relevant motoring expenditure (RME) above a certain level. The maximum amount of RME that can be disregarded for NICs purposes for an employee in each earnings period is called the 'qualifying amount'. The qualifying amount (the amount you can disregard for NICs purposes) where a mileage rate is paid is calculated by multiplying the employee's business miles in the earnings period by the applicable rate per mile from the table above.
NIC rules - What to report, what to pay
If the RME you provide to an employee in the earnings period exceeds the qualifying amount:
- add the excess to their other earnings for that earnings period when calculating Class 1 NICs (but not PAYE tax) through your payroll
If the RME is below the qualifying amount, you have:
- nothing to report
- no NICs to pay
Note that there is no NICs equivalent of Mileage Allowance Relief and you cannot carry forward the difference between RME and the qualifying amount to use in a later earnings period.
Please contact us at Edwin Smith if you require further advice.
