One of the most common expenses incurred by a company owner or an employee is travelling for work purposes, and it's more and more common for people to use their own cars for business purposes. Both company directors and employees are entitled to tax relief for travel costs that occur due to travel for business reasons. 
Business travel includes journeys like travel from the workplace to visit customers and clients, for example a salesperson might use their own car to travel between clients and the office, and they would therefore be able to claim for these journeys undertaken during their working day. 
 
You usually can’t claim tax relief on the expense of your usual commute i.e. travelling between home and the workplace. If you have employees and you do choose to pay or reimburse them for the costs of their commute, this is considered to be an additional salary, and so you should deduct tax and National Insurance contributions from what you pay them. 
 
If you or your employee uses their own car for business travel, there is a statutory system of tax-free approved mileage allowances available. The maximum amount per business mile is known as the approved mileage allowance payment or AMAP. 
An employer can pay or reimburse an employee up to these amounts on a tax and NIC free basis - and if you pay less than these amounts, they can claim tax relief on the unused balance. 
 
The AMAP rates are as follows: 
 
First 10,000 business miles in the tax year 
Each business mile over 10,000 miles in the tax year 
Cars and vans 
£0.45 
£0.25 
Motorbikes 
£0.24 
£0.24 
Bicycles 
£0.20 
£0.20 
Note that the mileage rate covers the cost of running and maintaining the vehicle, including fuel, oil, repairs, servicing, insurance, and MOTs. The rate also covers the depreciation of the vehicle. 
 
If you, as an employer, pay out more than the AMAP rate, then this is seen as extra wages, so you will have to deduct tax from the extra. You should also work out whether your employee needs to pay more NIC. If they do, this will be taken from their wages via payroll. 
 
If you opt to pay your employees less than the AMAP rate, they can claim tax relief against their earnings for the difference, as long as they earn enough to pay tax on their income. This relief is called mileage allowance relief (MAR). In order to make a claim, they must keep a record of business miles and any mileage allowance payments made by you. 
 
For example, if your employee travels 10 business miles and you don’t reimburse the cost, they can then claim tax relief on £4.50 (10 miles at 45p). If they pay tax at 20%, this means thy will get £0.90 off their tax bill (£4.50 at 20%). 
 
If you or your employee needs to take a passenger with them on a journey, up to 5p a mile can be paid on a tax- and NIC-free basis. If you pay more than 5p a mile, the extra is taxable and NIC-able. It should be obvious but in case it isn't, the other passenger must also be an employee of your company and the journey must be for business reasons, such as visiting a client! 

Next steps 

Feel free to get in touch with us today if you're in need of help with claiming your mileage allowances for either yourself or your employees. It may seem like small change, but it all adds up over time! 
 
 
 
 
Written by 
 
Nicola J Sorrell - 
Effective Accounting 
 
Founder | Xero Champion | IR35 Expert 
Tagged as: Expenses, Travel
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