Employees may be entitled to claim an allowance from their employer if using their own vehicle for journeys undertaken during the course business. The allowance is exempt from both National Insurance Contributions (NICs) and tax and is paid periodically or as a lump sum.
Which Journeys Can an Employee Claim Tax-Free Allowances For?
Payments must be made directly to the employee and relate only to business journeys. Any allowances paid in relation to non-business journeys will be taxed in the usual way. Business journeys are defined as those that have to be undertaken in order to carry out a job, which might include the delivery of goods, sales calls or meetings. A non-business journey includes those not related to work, such as private outings, as well as travel to and from the usual place of work.
There is a set limit to the tax-free allowance, even if actual costs exceed this. Any additional allowances awarded on top of the tax-free sum will be treated as income, so National Insurance Contributions and tax will be payable on this figure.
Tax-free amounts are calculated by multiplying the distance travelled by the appropriate approved mileage rates. For the first 10,000 miles these are: cars and vans – 45p; motorcycles – 24p; bicycles – 20p. For each mile thereafter they are: cars and vans – 45p; motorcycles – 24p; bicycles – 20p.
Employees Who Are Not Paid the Full Allowance
Those who are not paid the full tax-free allowance by employers may be entitled to Mileage Allowance Relief to make up the short-fall. To make a claim for Mileage Allowance Relief, employees should complete a P87 form, which can be found on the HMRC website.
For Those Who Carry Passengers
If employees also carry passengers, they can claim an additional sum. This is currently five pence per mile. No allowance relief is payable on this.
What Will Employers Require?
In order for employers to calculate and pay tax-free allowances, employees will be required to provide details of all business journeys, including mileage and dates. Records must also be kept in order to substantiate any claim for Mileage Allowance Relief.
For Multiple Jobs and Vehicles
Employees using more than one of the same type of vehicle will need to calculate mileage in the same way as if they have used just one. However, if different kinds of vehicles are utilised (for example, a van and a bicycle), the calculations should be carried out separately.
Those in more than one job, with either the same company or group of companies, will need to combine their overall mileage for all business journeys in order to determine at which point allowances revert to the lower mileage rate. However, for those working for more than one organisation who do not have any sort of association, the higher mileage rate will be payable for each, up to 10,000 miles.
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