HMRC publish approved mileage allowance payment figures for using your own vehicle at work. Employees can reclaim £0.45 per business mile driven, up to 10,000 miles, in their own car. After the 10,000 threshold, the rate drops to £0.25 per business mile. The money is of course reclaimed from the company that they work for. However, the business is under no obligation to actually repay the employee at these rates, or at all!
Most, if not all companies, will repay their employees for conducting business mileage in their own vehicles. If the reimbursement to the employee happens at the approved rates, then no reporting to HMRC is required. However, many business do not use the approved rates, instead using a flat fee. Some choose to pay pay lower rates, thinking that £0.45 per mile is excessive. Others, particularly those with more active fleets, struggle to establish exactly when each driver crosses the 10,000 mile threshold as thus end up in an accounting quandary.
For the employees who are paid at a lower than advisory rate, HMRC classify the shortfall to be an expense that the employee incurs in order to fulfil their job. This expense therefore becomes something for which the employee can claim tax relief on.
For example, say an employee is paid £0.30 per business mile and conducts 10,000 business miles in 2013/14;
- Advisory Fuel Claim £0.45 x 10,000 miles = £4,500
- Actual Amount Reclaimed £0.30 x 10,000 miles = £3,000
- Shortfall = £1,500
The employee now reclaim tax against the £1,500 expense that has been incurred. A basic rate tax payer will collect a rebate of £300 and higher rate payer £600. With the potential to reclaim for the previous 5 years, the employee would be looking at a more than sizeable rebate!
For more information and to download your P87 form, click here and reclaim now.
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