Mileage allowance is a valuable tool provided by HMRC to offset the costs of work-related travel. This guide will explore what mileage allowance is, who can claim it, the rules for directors, and how to avoid common pitfalls when claiming.
What Is HMRC Mileage Allowance?
Mileage Allowance Payments (MAPs) are payments employees and directors can claim for using their personal vehicles for business purposes. It covers fuel, maintenance, and wear-and-tear costs at HMRC-approved rates.
Who Can Claim Mileage Allowance?
Employees:
Claim if reimbursed below HMRC-approved rates.
Self-Employed Individuals:
Deduct as a business expense.
Directors:
Claim for business-related mileage when using their personal car for company business.
Taxi Operators:
Special rules apply (discussed below).
What Can Be Claimed?
Business mileage:
Travel for meetings, client visits, or other work-related destinations (excluding commuting).
HMRC-Approved Rates:
- Cars/vans: 45p per mile for the first 10,000 miles, then 25p per mile.
- Motorcycles: 24p per mile.
- Bicycles: 20p per mile.
What Cannot Be Claimed?
Commuting:
Travel between home and your regular workplace.
If you would like guidance on travel and food expenses self employed can claim, see our blog "Travel and Food Expenses Self-Employed Individuals Can Claim in the UK"
Lease rentals:
If claiming mileage allowance, you cannot also claim the lease rental costs.
Personal Use Costs:
Such as fuel for personal errands.
Directors and Mileage Allowance
Directors of limited companies are eligible to claim mileage allowance under the same rules as employees. Here's how it works:
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Eligibility:
- Use your personal vehicle for company-related travel.
- Maintain accurate mileage logs.
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Reimbursement:
- The company reimburses the director at HMRC-approved rates.
- Reimbursements below these rates allow the director to claim the difference on their self-assessment tax return.
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Example for Directors:
A director drives 6,000 business miles in a year. The company reimburses 30p per mile.Claim Calculation:
- HMRC allowance: 6,000×45p=£2,7006,000 \times 45\text{p} = £2,700
- Reimbursed: 6,000×30p=£1,8006,000 \times 30\text{p} = £1,800
- Claimable Difference: £2,700−£1,800=£900£2,700 - £1,800 = £900
The director can claim £900 as a tax deduction.
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No Double Dipping:
Directors cannot claim mileage allowance and expenses like fuel or maintenance costs for the same journey.
Conditions for Claiming Mileage Allowance
- Accurate Records: Maintain a detailed log of business trips, including:
- Date.
- Start and end locations.
- Purpose of the journey.
- Number of miles traveled.
- Employer Payments: Deduct any payments received from your employer or company from the claim.
- Consistency: Self-employed individuals must stick to one method (actual costs or mileage allowance) for a vehicle.
Common Mistakes When Claiming
- Claiming Commuting Costs: Only claim for business-related travel.
- Insufficient Records: Failure to keep detailed logs can lead to rejected claims.
- Overstating Mileage: HMRC may investigate exaggerated claims.
Can You Switch Between Actual Costs and Mileage Allowance?
- Self-Employed: Must consistently use the same method for a specific vehicle.
- Directors and Employees: Can claim based on employer reimbursement or HMRC rates but cannot switch methodologies for the same vehicle in the same tax year.
Taxi Operators and Mileage Allowance
Taxi operators cannot claim both mileage allowance and lease rental costs simultaneously. Claim either:
- Mileage allowance for journeys.
- Actual costs: Including lease payments, fuel, and maintenance.
Example Scenarios
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Director Example:
A director drives 12,000 miles for business:- 10,000×45p=£4,50010,000 \times 45\text{p} = £4,500
- 2,000×25p=£5002,000 \times 25\text{p} = £500
- Total: £5,000 reimbursed tax-free by the company.
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Taxi Operator Example:
If leasing a car for £400/month and traveling 1,000 miles:- Cannot claim both the lease cost (£400) and mileage allowance (1,000×45p=£4501,000 \times 45\text{p} = £450).
Tips for Claiming Successfully
- Use a mileage-tracking app for precise record-keeping.
- Align company policies with HMRC rates to simplify director claims.
- Regularly review HMRC updates on mileage rates.
Final Thoughts
Directors, employees, and the self-employed can all benefit from HMRC mileage allowance if used correctly. By maintaining thorough records and following HMRC guidelines, you can ensure your claims are compliant and maximise your tax relief.
For more guidance tailored to your circumstances, consult a tax advisor or visit the HMRC website.
MSA Accountants can help you in claiming the right costs for milage allowance.