Employees who use their own car at work for business purposes can, under certain circumstances, be paid a tax-free allowance by their employers. This includes the use of their own van, motorcycle or bike. It is important to note that this tax-free allowance does not include journeys to and from work but for other business related mileage.
Employers usually make payments based on a set rate per mile depending on the mode of transport used. There are approved mileage rates published by HMRC. Where the approved mileage rates are used, the payments to employees are not regarded as a taxable benefit.
Where an employer pays less than the published rates, the employee can make a tax relief claim for any shortfall. Any payments received in excess of the approved rates will be taxed as if remuneration.
The current approved rates per mile are:
- For cars, the approved mileage allowance payment for the first 10,000 business miles is 45p per mile and 25p per mile for every additional business mile.
- For bycles, the approved rate is 20p per mile, and
- 24p per mile for motorcycle travel.
There is also an additional 5p per passenger per business mile for carrying fellow employees in a car or van on journeys which are also work journeys for them. Only payments for carrying passengers count and there is no additional relief if you receive less than 5p.
As always, employers will need to formalise the claims process, and as a minimum, claims should display the purpose of the business journey, an accurate read of the mileage involved and the rates per mile paid.
If your business pays more or less than the approved rates, we can help you set up systems to deal with excess payments, or prepare tax claims for employees if lower rates are applied.