Employers
Employers can reimburse employees using their own car, van, motorcycle or cycle for business travel by using tax free Approved Mileage Allowance Payments or AMAPs for short. The current rates are:
| Kind of vehicle |
Rate |
| Car or van |
40p for the first 10,000 miles
25p after that |
| Motorcycle |
25p |
| 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.
If the employer pays more than the approved amount, the excess should be returned on form P11D or P9D. If you pay the exact amount, you do not need to notify HMRC. If you pay less (or nothing at all), the employee is entitled to a deduction for the shortfall as Mileage Allowance Relief. This can be done by completing a P87 form - Tax relief for expenses of employment, and submitting this to HMRC without the need for completing a self assessment tax return. However, the passenger rate cannot be claimed if your employer doesn't pay it.
If your business is registered for VAT you can claim input VAT on the fuel element only of the mileage allowance providing there is documentation in support of the claim. Unless the employee purchases the road fuel using fuel card, credit card or debit card provided by the employer, the employer must retain invoices issued to employees when the fuel is delivered to them. This can be a full VAT invoice or a less detailed VAT invoice. Input tax may only be claimed on the cost of fuel for business use in making taxable supplies. As such, the invoices only need to cover this amount.
HMRC accept that the amount of the invoice in many cases will not match the input tax claim in respect of business fuel in any one claim period and invoices may cover more than one period, particularly where fuel is purchased towards the end of a period. Clearly, a claim cannot be supported by a VAT invoice which is dated after the dates covered by the claim. This means, in practice, that it may be advisable for employers to arrange for their employees who use, or may use, their cars for business purposes to retain all fuel invoices. This will ensure that, at the end of the claim period, the value of business fuel is covered by an invoice.
HMRC publish their own advisory fuel rates per mile rates every 6 months but also accept rates set by recognised motoring agencies, eg RAC, AA etc. The input claim is calculated by multiplying the fuel element of the mileage allowance by the VAT fraction, currently 7/47, and then 1/6 from 1 January 2011 when the rate of VAT increases to 20%.
Records to keep of employees’ mileage
If employees are paid a mileage allowance the employer must have records for each employee showing:
- the mileage travelled
- whether the journey is both business and private
- the cylinder capacity of the vehicle
- the rate of mileage allowance and
- the amount of input tax claimed (and VAT receipts if input is claimed)
Self-employed taxpayers
Self-employed taxpayers can compute their expenses using the above fixed rate mileage allowance per business mile if the annual turnover of their business is less than the VAT registration threshold when they first use the vehicle. This method is intended to make things simpler for small businesses. No one has to use it. Taxpayers who do not use it should deduct the actual amount they spend. In either case the journey must be made wholly and exclusively for business purposes.
Taxpayers can only use the mileage rate basis if they apply it consistently from year to year. They can only change to or from an 'actual' basis when a vehicle is replaced.
If the turnover of the business increases and exceeds the VAT registration threshold, then the taxpayer should continue to use the mileage rate basis until the vehicle is replaced.
If there is a change in the VAT threshold, then the taxpayer should continue to use the same basis until the vehicle is replaced.
