How are the tax-free amounts calculated?

Calculating the amount of business mileage allowance that you are entitled to can initially seem quite daunting, but by taking into account the rates payable and the distance travelled, you can work out your claim. Ensuring that you maintain accurate records of your mileage, including dates and distance travelled, will make this a much easier task.

Different vehicles, different rates.

Business mileage can apply to any vehicle you use in the course of your work, be this a car, van, bicycle or motorbike. The mileage allowance is to cover expenses such as fuel, wear and tear, road tax and any other expenses incurred as a result of the use and maintenance of the vehicle. The type of vehicle you use will affect the amount of business mileage you can claim, as they are calculated at different rates. HMRC have set rates to use as guidelines for working out your tax-free mileage allowance. For cars and vans, the allowance is 40p per mile for the first 10,000 miles, dropping to 25p for each business mile you travel over this distance. These rates apply to claims from tax years 2002-03 to 2010-11. From April 6th 2012, the rate for cars and vans increased to 45p per mile for the first 10,000 miles, reduced to 25 per mile thereafter. The rate for motorcycles is 24p per mile, irrespective of distance travelled within the tax year. For bicycles, the rate is 20p per mile.

Calculating your tax-free total.

Provided you have accurately logged details of qualifying journeys, calculating your total allowance is relatively straight-forward. It is important to remember that your usual commute does not count as part of your business mileage claim. Simply multiply your miles travelled by the applicable rate. For example, if you use your car to travel 12,000 miles in a tax year, the first 10,000 will be calculated at 45p per mile, whilst the remaining 2000 will be paid at 25p per mile, giving you a total allowance of £5000. This sum is not one that you receive back from HMRC, but is the total amount of your income on which you do not pay any tax. If you use several different vehicles of the same type, you can calculate the mileage together, but if you use more than one type of vehicle, you will need to make separate calculations. If you receive an allowance above the guideline amount, the excess will be taxable.

Are you claiming your full entitlement?

If you do not receive mileage allowance from your employer or they pay a rate that is lower than the HMRC recommended rate, then you can claim Mileage Allowance Relief. For example, if you use your motorbike to travel 8000 miles, which your employer pays a rate of 15p per mile, this totals £1200. However, the same travel would be eligible for 24p per mile according to HMRC, giving a total of £1920. You can apply for MAR for the additional 9p per mile to make up the difference. HMRC do not give you the extra 9p per mile, but the amount of income that you do not pay tax on will be larger.

Calculating your tax-free allowance is simple provided you have kept accurate records of each qualifying journey.

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