If you and your employees drive back and forth for business purposes, it’s a business-related expense. Thus, employees can claim their petrol money back, and the firm can deduct these reimbursements from its taxable income. In the article below, we break down the latter — the so-called business mileage claim.
What can be classified as business mileage?
Any travel the employee needs in order to perform their work duties can be claimed as business mileage. The delivery of any good to the client counts. A car drive to the client's office or some other facility counts as well. If an employee travels between different workplaces within the same job, these drives can also be claimed.
But if any personal reason is involved, e.g. one’s parents live on the same street and one plans to meet with them after work is done, such trip cannot be claimed. Daily journeys from home to workplace and back are also out of scope. If you are travelling to some nearby location, let's say to the building down the street you live on, that also cannot be covered.
Who benefits from claiming mileage?
If you are an employee you can get a refund from your employer on expenses you bore. Being an employer and compensating mileage to your employees, you can later pay less Corporation Tax as these payments are your business expenses and they reduce your taxable income. If you are self-employed, use your business mileage claims to get tax relief. Sole traders claiming mileage reduce their profits and thus pay less tax.
If the employer does not pay business mileage or pay less than HMRC expects them to (see below), an employee can claim the difference at the end of the tax year.
How much can employees claim?
There are different rates for different circumstances. If the employee drives their own car, usually the mileage payback is calculated according to approved mileage allowance payments (AMAP) set by HMRC:
|Mode of transport||First 10,000 miles||Over 10,000 miles|
James drives 20,000 miles annually using his personal car, so he has the right to claim £7,000 (10,000 x £0.45 + 10,000 x £0.25 = £7,000). Moreover, James can add 5p/mile per passenger for carrying fellow employees on journeys provided that those are work journeys for his colleagues.
If one drives a company car, Advisory Fuel Rates (AFR) can be used for calculation of the business mileage. Beware that these rates are being updated on a quarterly basis, e.g. stated below rates have been applied from 1 September 2019.
|Engine size||Petrol - amount per mile||LPG - amount per mile|
|1400cc or less||12 pence||8 pence|
|1401cc to 2000cc||14 pence||10 pence|
|Over 2000cc||21 pence||14 pence|
|Engine size||Diesel - amount per mile|
|1600cc or less||10 pence|
|1601cc to 2000cc||11 pence|
|Over 2000cc||14 pence|
Claire’s employer provides her with a 1800cc engine diesel car and she drives 20,000 miles annually. Clair can claim £2,200 (20,000 miles x £0.11 = £2,200). If she drove an electric car, Advisory Electricity Rate (AER) would be 4 pence per mile. Hybrid cars are considered either petrol or diesel.
How much can self-employed claim?
For the self-employed, there are two methods of calculating travel expenses. The first one is more complicated and is applied to the business above the £83,000 VAT threshold, though you can use it with less turnover. This method is calculating how many miles you drove in total and deducting the miles unrelated to business travels.
Max has spent £8,000 on his car fuel, maintenance and insurance. Last year he drove 40,000 miles, 30,000 of which were business-related. That makes 75% of all the miles travelled. So Max can claim £6,000 (30,000 / 40,000 = 0,75; £8,000 x 0.75 = £6,000).
The second method for the self-employed is a fixed simplified expenses rate for each mile set by HMRC. This is exactly the same approach to calculating the business mileage as the one used for employees driving their own cars. The rates are as follows (updated quarterly):
|Vehicle||Flat rate per mile with simplified expenses|
|Cars and goods vehicles first 10,000 miles||45 pence|
|Cars and goods vehicles after 10,000 miles||25 pence|
Janine has driven 12,000 business miles over the year, so she can can claim £5,000 (10,000 x £0.45 + 2,000 x £0.25 = £5,000).
There is bad news for bicycle riders. The self-employed who use bicycles for their work cannot claim mileage. The bright side is that you can claim the costs of buying a bicycle along with spendings on consumables like tyres and the maintenance costs. It is best to speak with your accountant or your local tax office to learn what exactly you can claim.
What evidence do I need to claim business mileage?
To ensure that claims are accurate and compliant, employers and employees must keep a record of their mileage. Without proper records, HMRC may not accept your mileage deduction. In the worst case, you can even be fined. These are the mileage log requirements that you are obliged to keep for each business trip:
- The dates and times of the trip;
- Start and end addresses;
- The mileage travelled;
- Reason for the journey;
- Amount claimed.
Moreover, all this data should be archived for at least 5 years. Accuracy in business mileage claims is very important and can prevent possible problems.
Use your cell phone to calculate and track your mileage properly. There are plenty of offers for mileage tracking solutions with special software that can collect data, but any GPS device can be used for this purpose.