What reimbursements are covered by business mileage tax rules?

The tax rules surrounding business mileage can at first glance seem quite complex, but if you use your own vehicle for business travel then you may be entitled to an allowance towards some or all of the costs.

Understanding the regulations will ensure you do not miss out on any tax reimbursements that you are fully entitled to. Your employer will usually pay these as either a monthly allowance or a one-off lump sum. If certain criteria are met, you may receive this money without having to pay tax on it. In order to qualify as tax-free, there are three key parameters your payment must meet.

Payments must be paid to you personally

In order to remain tax-free the payments must be made to you personally. Those made to somebody else on your behalf do not qualify. However, if you carry fellow employees in your vehicle for journeys that are specifically for business then you may also be entitled to payments for them that are free of tax and NICs (National Insurance Contributions).

You must use your vehicle for work journeys

An allowance may be paid for use of your own vehicle, which might be a car, van, motorbike or bicycle. Different mileage rates apply to each type of vehicle, so you will need keep separate records if you use more than one type of transport. Business mileage is mileage that you travel in the course of your work.

It does not include your regular commute to and from your place of employment. These might include visiting a client on your way to work, provided that this significantly alters the length of your journey. If you are paid a mileage allowance on non-work journeys, this amount will be taxable.

Tax-free payments must be within a legal limit

The payable rate is determined by your employer but HMRC guidelines suggest 45p per mile for the first 10,000 miles for cars and vans, with motorcycles and bikes being paid at 24p and 20p. Mileage over 10,000 miles within the tax year will be paid at a lower rate.

If you are paid above the recommended rate then you will be liable for tax on the difference. If you employer pays less than the HMRC guideline rate, you are entitled to Mileage Allowance to make up the shortfall. For example, if you receive 20p per mile, you can claim 25p per mile from HMRC. This is not money that you receive but will be a reduction in the amount of your income that is taxable.

These three key rules must be adhered to in order for a payment to remain tax-free. Any other payments made to you in regard to your business mileage will be taxable as earnings. The regulations regarding NICs are a little more complicated and it is your employer’s responsibility to calculate what you may be owed without having to contribute to these. However, it is vital to note that if these three conditions are not met, any mileage allowance received will be taxable.

Use our free calculator to find out how much income tax you could be entitled to reclaim.

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