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Introduction
As a UK limited company contractor or business owner, how do you go about claiming tax relief on mileage expenses when you use your private car or van for business journeys? In addition, what do contractors charge for mileage and what are they allowed to claim for company mileage rates (UK) under the present rules? Notably, the good news is you may be able to claim business mileage allowance relief, provided that specific criteria are met when you are UK contracting. HM Revenue & Customs (HMRC) have set mileage rates and you can make a HMRC mileage claim by using the official rates. It is also worth noting that the HMRC business mileage rates are set at a fairly generous level as they aim to re-compensate you for all of your private vehicle running costs.
Initial thoughts
The benefits of making a business mileage claim
If you meet the set criteria; you can claim car or van mileage as a business travel expense. Once you have worked your business mileage expenses out:
- Your business will receive tax relief on the mileage claim.
- Your company can reimburse you for the claim that you make.
HMRC Business mileage allowance (UK) -how to claim this
Let us now consider how to claim business mileage. Therefore, what are the rules that surround claiming for the HMRC mileage allowances? In addition, when you undertake business journeys for your company, how do you calculate your HMRC mileage claims so that you can receive mileage allowance relief?
You may need to travel daily to your contract site when you are a UK contractor with your own company. Many limited company contractors travel in their own car and when they do, they can claim an allowance tax-free for the business use of their private vehicle. This can then be treated as a business expense and your company will receive mileage tax relief.
The HMRC approved rates
Both company directors and employees can claim their mileage for business journeys. They will claim this from their employer as travel expenses. A UK contractor will claim the mileage allowance from their contractor limited company.
If you are an employer, you can reimburse employees under the HMRC Approved Mileage Rate Payments (AMAP). If you pay more than HMRC approved mileage rates, the extra will need reporting on forms P11D. Alternatively, as an employer, you can choose to pay less than the approved HMRC mileage rates. If the employer pays less than 45p per mile, the employees can claim the difference, up to the HMRC approved amount, via their Self-Assessment tax returns at the end of the tax year.
Perhaps you may be concerned about looking after the environment. If this sounds like you, and where practical, you may decide instead to travel to your contract site by bike or motorcycle.
The Fixed Profit Car Scheme (FPCS)
The available rates
The mileage you can claim while contracting is payable under HMRC’s Fixed Profit Car Scheme. The HMRC mileage scheme is also known as the Mileage Allowance Payment Scheme (MAPS). Notably, the HMRC mileage allowance rates do increase from time to time. However, they have been at the same level for several years now.
Besides car mileage, there are also fixed rates for both a motorcycle and motorcycle and cycle mileage allowance. Therefore, the business mileage rates that you can claim under the HMRC-approved mileage rates scheme 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 |
To summarise
Therefore, to reiterate, for cars and vans the HMRC rate per mile under the Fixed Profit Car Scheme are:
- A HMRC business mileage rate of 45p per mile for the first 10,000 miles you travel in the tax year.
- The HMRC business mileage rates claim then reduces to a business mileage rate of 25p for each mile after that in the same tax year.
Calculate your claim
To calculate how much you can claim, you can multiply the number of business miles by the applicable company mileage rates, which will give your HMRC business mileage. Your company can reimburse you for your contracting mileage by using the HMRC mileage rates on a regular basis.
The HMRC rates of 45p for the first 10,000 miles and 25p thereafter, which are in place for your mileage claims, are set at a generous level. The reasoning behind the level of these rates for your HMRC mileage claims enable your employer to reimburse you for all your running costs. The mileage rates / mileage tax allowance is set at such a level so as 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, when you claim car mileage at the approved mileage rates (HMRC) via your business, you cannot claim for any other private car running costs.
Notably, besides claiming business mileage expenses under the Fixed Profit Car Scheme, the only other car-related costs that UK contractors can claim when using their private vehicle for business journeys are parking fees and road tolls.
Further considerations around the HMRC Business mileage allowance
The types of journeys that you may undertake
Besides travelling to and from your contract site and work locations, there are other journeys that you may undertake for business purposes. You can make a business mileage claim for these journeys at the official car allowance mileage rates and therefore receive HMRC mileage allowance relief too, and they could include:
- Travel to a hotel or B&B where you are staying away overnight in connection with your work. You might also drive to a flat or house you rent while on contract.
- Attend training courses.
- Visit a recruiter.
- Visit your contractor accountant.
- 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 that it is 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 business journeys
Keeping a log of your company mileage journeys when you are claiming mileage expenses is essential. This log should include dates, starting and finishing locations, and the number of miles. You will need to do this just in case HMRC asks to see these at a later date. The record can be electronic or on paper. However, you must keep a log of this.
When HMRC performs an inspection, this will include checking all of your expense and mileage claims. This will be to make sure that these are all in order. Therefore, it is essential to keep receipts and relevant business records to back up any claims made from your business. Consequently, it is key that you retain any relevant records for both you and your employees.
HMRC and reimbursing your business mileage allowance
You may have just started UK contracting, and your company does not yet have funds. If this is so, you have two choices when it comes to reimbursing your car mileage allowance (HMRC) claims:
- Wait until your company has generated some funds. Once these are in your bank account, you can reimburse yourself accordingly.
- Introduce your funds to your company, and then you can reimburse yourself. The funds introduced are also fully reimbursable to you once the company has the funds to do this.
Other thoughts when using your private car for business journeys
VAT registered
If your company is VAT registered and you are operating under the standard/normal VAT scheme, your company can also reclaim some VAT within the HMRC mileage claims. When it comes to claiming VAT on mileage which your company can claim is at HMRC set rates. You must obtain and retain your fuel receipts to make your VAT on mileage claims.
24-month rule
Claiming for your business journeys at the HMRC mileage rates is also subject to the 24-month rule. Therefore, if and when you know that you will be based at your contract site for longer than twenty-four months, you can no longer claim your mileage to your contract site.
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 also claim extra mileage from your company as part of your HMRC mileage claims. Therefore, when you take a passenger with you, an additional 5p per mile can be claimed as part of your overall mileage claim.
Paying more than the FPCS rates
If your company pays more than the approved HMRC mileage rates, the excess will need reporting on form P11D. The employer will pay NI on this (at 14.53% in 2022/23 and 13.8% in 2023/24), while the employee will pay tax (at either 20%, 40% or 45%). Therefore, ensuring that your contractor mileage reimbursements stay within these allowed rates is essential.
Final thoughts
This article details how you can claim mileage when you use your private car for business journeys. It may be the case that you are on the road every day. On the other hand, you may make the occasional business journey.
It is good practice to keep records, and we advise you to keep track of your mileage. If you do this, you can claim your mileage, and the tax relief will help reduce your company’s overall tax bill. What’s more, you also end up with more money in your pocket when you claim the mileage from your business.
We have another article that compares the use of your private vehicle to that of a company car. This takes a look at the tax implications between the two.
Link to Contractor Advice UK group on
