Mileage allowance and mileage expenses

Introduction 

As a business owner, can you claim tax relief for mileage expenses when you use your private car or van for business journeys? The good news is you may be able to claim mileage allowance relief, provided that certain criteria is met.

Therefore, providing you meet the criteria, you can claim for car or van mileage as a business travel expense. Once you have worked our mileage expenses out:

  • Your business will receive tax relief on the mileage allowance.
  • Your company can reimburse the mileage claim to you.

However, what are the rules that surround claiming for HMRC mileage allowances?

Initial thoughts

When you are a contractor with your own company, you may need to travel to your contract site each day. If you are travelling in your car, you can claim an allowance, for the business use of your private vehicle. This can then be treated as a business expense.

Both company directors and employees can claim for their mileage expenses for business journeys. They will claim this from their employer as travel expenses.

If you are an employer, you can pay your employees under the HM Revenue & Customs (HMRC) Approved Mileage Rate Payments (AMAP). If you pay more than these rates the extra will need reporting on forms P11D. Alternatively, as an employer, you can choose to pay less than the HMRC approved rates. If you do this, the employees can claim the difference, up to the HMRC rates, 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 rates that are available

The mileage that you can claim is payable under HMRC’s Fixed Profit Car Scheme. The HMRC mileage scheme is also now known as the Mileage Allowance Payment Scheme (MAPS). Notably, the HMRC mileage rates do increase from time to time. However, they have been at the same level for a number of years now. The rates for approved mileage payments are:

  • A business mileage rate of 45p per mile for the first 10,000 miles that you travel in the tax year.
  • The claim then then reduces to 25p for each mile after that.

These rates apply to privately owned cars. If you travel via private bicycle or motorbike, different rates apply.

To calculate how much you can claim, you can multiply the number of business miles by the applicable mileage rate and this will give your mileage claim. Your company can reimburse you any mileage expenses that are owed on a regular basis.

The HMRC rates of 45p for the first 10,000 miles and 25p thereafter that are available for your mileage claims, are set at a generous level. The reasoning behind the level of these rates is so that your employer can reimburse you for all of your running costs. This includes the overfall wear and tear of your own vehicle as well as fuel, repairs, servicing and maintenance, insurance and road fund tax. Therefore, when you claim for car mileage at the approved mileage rates via your business, you are not able to claim for any of your other private car running costs.

Notably, besides mileage expenses, the only other car-related costs that you can claim for when using your private vehicle for business journeys are parking fees and road tolls.

The types of business 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 claim mileage for these journeys too and they 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 that is so far away that it is not practical to either travel there and back each day, or be staying 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

It is important to keep a log of your business journeys when you claim for the tax free HMRC mileage allowance. 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 claims including mileage claims. This will be to make sure that these are all in order. Therefore, it is important to keep receipts and relevant business records to back up any claims made from your business. Therefore, it is key that you retain any relevant records for both you and your employees.

HMRC and reimbursing your mileage

You may have just started up and your company, and it does not yet have any funds. If this is so you have two choices, when it comes to reimbursing your mileage:

  • Wait until your company has generated some funds. Once these are in your bank account, you can then 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 be able to do this.

Other thoughts when using your private car for business journeys

If your company is VAT registered and you are operating under the normal VAT scheme, your company can also reclaim some VAT, within the mileage claims. The VAT element that your company can claim is at HMRC set rates. To be able to claim for the VAT elements, you will need to obtain and retain your fuel receipts.

Claiming for your business mileage at the HMRC mileage rates is also subject to the 24 month rule. Therefore, if and when you are aware that you will be based at your contract site for longer than twenty-four months, you are no longer able to claim for your mileage to your contract site.

Additionally, if you take an employee to their work site in your vehicle, you are also able to claim extra mileage from your company. Therefore, when you do take a passenger with you, an additional 5p per mile can be claimed as part of your overall mileage claim.

If your company pays more than the HMRC approved rates, the excess will need reporting on form P11D. The employer will pay NI on this (at 15.05%) whilst the employee will pay tax (at either 20% or 40%). Therefore, it is important to make sure that your company’s mileage reimbursements stay inside these allowed rates.

Final thoughts 

This article covers in detail how you can make a claim for 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 would advise you to keep track of your mileage. If you do this, you can claim for your mileage and the tax relief will help you to 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

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Published On: March 21st, 2021 / Categories: Contractor Tips, Expenses, First timer guide, Most Read Articles /

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