Mileage allowance and HMRC business mileage under the Fixed Profit Car Scheme

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Introduction 

As a UK limited company contractor, do you incur business mileage for company journeys in your private car? If you do, you may use your vehicle for business journeys during the week. Therefore, what do contractors charge for mileage, and what is claimable for company mileage rates (UK) under present rules? You may want to claim business mileage allowance relief for your work journeys. However, when you’re UK contracting, you can only make an HMRC mileage claim if the journey meets specific criteria. Also, HM Revenue & Customs (HMRC) has set UK mileage rates, which you can use to make mileage claims for business journeys in your private car. It’s also worth noting that the HMRC business mileage rates, under AMAPs, are set at quite a generous level. Indeed, the HMRC mileage rates aim to re-compensate you for all your private vehicle running costs.

As a contractor and small business owner, you may undertake contractor travelling regularly, incurring contractor mileage for business journeys. Knowing what you can expense for your contractor’s travel costs is not just beneficial, it’s vital. Understanding how to expense mileage as a contractor is essential when making work journeys in your vehicle. In this guide, we’ll research contractor and consultant mileage rates in the UK. We’ll examine how mileage allowance payments work and research VAT on mileage rates. Moreover, we’ll investigate the UK contractor mileage rate in 2024. As part of this, we’ll determine when you can claim for your contractor travels. Furthermore, we’ll discover which contracting journeys you can expense a mileage reimbursement (UK) for. Finally, we’ll learn how to claim tax relief on mileage expenses.

Initial thoughts 

What are the benefits of expensing company mileage?

If you meet the set criteria, you can claim mileage under the AMAPs system regarding car or van business travel. This stands for Approved Mileage Allowance Payment, and HMRC sets the rates for business trips and journeys. Therefore, once you’ve worked out your company mileage expenses and, as part of your claim for these:

  • Your business will receive tax relief on your mileage costs.
  • Your company can reimburse you for the work mileage expenses.

HMRC Business mileage allowance (UK) & how do you expense this?

Let’s now consider mileage reimbursement for contractors and how to claim business mileage expenses. Therefore, what rules surround making an HMRC car mileage allowance claim? In addition, when you undertake business contracting journeys for your company, how do you calculate your HMRC mileage claim so you can receive contractor mileage allowance relief?

You may have to travel daily to your contract site when you’re a UK contractor with your own company. Many limited company contractors travel in their own cars, and when they do, they can expense their mileage at a flat rate tax-free for the business use of their private vehicles. The company mileage claim can then be treated as a business expense, and your company will receive mileage tax relief.

HMRC approved rates

Both company directors and employees can expense mileage for business journeys. They’ll claim the costs for their business mileage from their employer. Regarding a UK mileage reimbursement for contractors, when running your own business, you’ll claim the UK mileage allowance from your contractor limited company.

You can reimburse employees under the HMRC Approved Mileage Allowance Payments rates if you’re an employer. If you pay more than HMRC-approved mileage rates, you must report the extra on forms P11D for employees. Alternatively, you can pay your employees less than the HMRC AMAP rates as an employer. However, when an employee is claiming mileage from the employer and the employer pays less than 45p per mile, the employee can claim the difference up to the HMRC-approved amount for the company mileage rate via their Self-Assessment tax returns at the end of the tax year.

Perhaps you are concerned about the environment. If this sounds like you, and where practical, you may travel to your contract site by bike or motorcycle instead. If you do, you can claim a company mileage allowance under the official rates when you travel using these methods.

The Fixed Profit Car Scheme (FPCS) 

Contractor mileage rate 2024 & what are the available rates? 

The mileage rate available while contracting is payable under HMRC’s Fixed Profit Car Scheme. The scheme provides flat-rate UK mileage rates and is known as the Approved Mileage Allowance Payments system. Indeed, the HMRC mileage allowance rates do increase from time to time. However, these mileage reimbursement rates for independent contractors have been at the same level for several years.

Besides car mileage, fixed rates are available for contractor mileage allowances for journeys by bicycle and motorcycle. Indeed, you can use the rates below to claim expenses for mileage for bike or car/van travel. Therefore, under the HMRC-approved mileage rates scheme the rates per mile are currently:

HMRC mileage rates since 2011/12 Rate per mile for the first 10,000 business miles in the tax year Rate per mile for each business mile over 10,000 in the tax year
Cars and vans 45p 25p
Motorcycles 24p 24p
Bicycles 20p 20p

The allowance level for mileage above under AMAPs applies to using an employee’s private vehicle for business.

Furthermore, if you run a company car, you can use the advisory fuel rates for your work mileage rates, and the HMRC website provides further details.

Summary

To reiterate, for cars and vans, the HMRC rates per mile payable under the Fixed Profit Car Scheme via AMAPs are:

  • An HMRC business mileage rate (UK) of 45p per mile for the first 10,000 miles you travel in the tax year.
  • The mileage rate then reduces to 25p for each mile after that in the same tax year.

Therefore, the business mileage rate for 2022/23, 2023/24 and 2024/25 is 45p for the first 10,000 miles and 25p thereafter.

How do you calculate mileage claims?

To calculate how much is claimable, multiply the business miles by the applicable company mileage rates. That’ll give you the amount of your mileage expense. What’s more, your company can reimburse you for your contracting mileage. Indeed, you can do this regularly by using the HMRC’s official mileage rates.

The HMRC car mileage rates of 45p mile for the first 10,000 miles and 25p are set by HMRC. These official rates are in place for your business contractor journeys and are set at a generous level. This is because the level of these rates enables your employer to reimburse you for all your running costs. The business mileage rates/mileage tax allowance is set at such a level it aims to re-compensate you for your vehicle’s running costs. This includes the overall wear and tear, fuel, repairs, servicing and maintenance, insurance, and road fund tax. Therefore, you can’t claim any other private car running costs when you use your business to expense car mileage at the approved mileage rates (HMRC).

Besides claiming mileage expenses under the Fixed Profit Car Scheme, the only other car-related costs that UK contractors can claim when using their private vehicles for business journeys are parking fees and road tolls.

Further thoughts on company mileage 

What types of contractor journeys might you undertake? 

Besides travelling to your contract site, you may undertake other business-related journeys. As a result, if you can claim for your contract site and different company journeys, you can claim for such trips at the official car allowance mileage rates under AMAPs. What’s more, such other business journeys could include:

  • Visit a recruiter.
  • Visit a financial advisor or pension advisor.
  • Visit the bank.
  • A trip to buy company supplies.

There may come a time when you obtain a contract so far away it’s not practical to either travel there and back each day or stay away during the week and travel back at weekends. In this case, you may consider relocating permanently, and there are certain areas to consider here.

Mileage logs to record your contracting journeys for business 

Keeping a log of your company mileage journeys when you’re claiming mileage expenses is essential. Therefore, when recording business mileage, your log should include dates, starting and finishing locations, and the number of miles. It would be best if you did this in case HMRC asks to see your mileage records later. The record can be electronic or on paper. However, it’s best if you keep a log of this.

When HMRC performs an inspection, it will include checking all your expenses and mileage expenses to ensure they’re all in order. Therefore, it’s essential to keep receipts and relevant mileage records to back up any claims made through your business. Consequently, you must retain any relevant documents for you and your employees.

Reimburse your business mileage when you’ve just started your company

You may have just started UK contracting, and your company doesn’t yet have funds. If this is so, you’ve two choices when it comes to reimbursing your car mileage allowance (HMRC):

  • Wait until your company has generated some funds. Once these are in your bank account, you can reimburse yourself accordingly.
  • Pay this in to introduce some funds to your company. Then, you can reimburse yourself for your mileage. Once the company has the funds to do this, the funds introduced are fully reimbursable.

Other thoughts when you use a private car for business journeys 

VAT on mileage allowance 

When considering whether you can claim VAT on business mileage, if your company is VAT registered and operating under the standard/normal VAT scheme, your company can reclaim some VAT within the HMRC mileage claims. When claiming VAT on mileage, HMRC has some set rates; most online accounting software incorporates these. This RAC guide summarises the VAT on mileage rates if you want to view these. In addition, when you reclaim VAT on mileage, you must obtain and retain your fuel receipts to make your VAT on mileage claims.

What is the 24-month rule?

Expensing for your business journeys at the HMRC mileage rates is subject to the 24-month rule. Therefore, as soon as you know you’ll be based at your contract site for over twenty-four months, the mileage to your site is no longer tax allowable. To explain further, you don’t have to wait until you’ve been at a site for 24 months. Instead, once you sign a contract extension or agree to sign one that puts you at the site for longer than 24 months, at this point, you know.

Taking a colleague or employee to work in your car

Additionally, if you take an employee to their work site in your vehicle, you can expenses for extra business mileage from your company as part of your HMRC mileage claim. Therefore, when you take a passenger, you can expense an additional 5p per mile as part of your overall UK mileage claim.

What if you pay more than FPCS rates?

If your company pays more than the approved HMRC mileage rates, you must report the excess on form P11D. In 2023/24 and 2024/25, the employer will pay NI on this at 13.8%, while the employee will pay tax (at either 20%, 40%, or 45%). Therefore, it is essential to ensure your contractor mileage reimbursements stay within these allowed rates.

Final thoughts 

This guide details how you can expense mileage under the AMAPs system when you use your private car for contractor business journeys. You may be on the road every day, and as a result, you can make a car mileage claim. On the other hand, you may make the occasional business journey and, as part of doing this, can make a company mileage claim. However, when you do make business journeys, you’ll save tax if you expense your mileage allowances as a contractor.

It’s good practice to keep records of your business mileage charges. Therefore, we advise you to keep track of your mileage and any other contractor travel costs. If you do this, you can claim your UK mileage and associated travel expenses from your business. Furthermore, claiming tax relief on mileage and other business travel costs will help reduce your company’s overall tax bill. What’s more, you have more money in your pocket when you expense your travel expenses and mileage from your company.

We also have another guide that compares the use of your private vehicle versus a company car. This looks at the tax implications between the two.

Link to Contractor Advice UK group on

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Published On: April 6th, 2024 / Categories: Contractor Tips, Expenses, First timer guide, Most Read Articles /

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