Many employees use their own car for work. If their employee does not pay a mileage allowance, or pays an allowance which is below the tax-free rates allowed by HMRC, the employee may be able to claim tax relief.
Business journeys only?
Tax relief for mileage costs can only be claimed in respect of journeys which are business journeys. This may include journeys to attend a meeting with a customer or a supplier. However, unless the employee is working at a temporary workplace, the journey between home and work is not a business journey.
HMRC publish approved mileage rates, which can be used out to work out the amount of relief that may be claimed.
For cars and vans, the approved rate is 45p per mile for the first 10,000 business miles in the tax year and 25p per mile for each subsequent business mile.
Mileage allowance relief can also be claimed if an employee uses his or her own motorbike or bicycle for work. The approved rate for motorbikes is 24p per mile and for bicycles the approved rate is 20p per mile.
Amount of relief
The amount of the relief depends on whether or not the employer pays a mileage allowance. If the employer doesn’t pay mileage, the employee can claim tax amount equal to the approved amount. This is simply the number of business miles in the year multiplied by the approved rate for the type of vehicle used by the employee.
Jessica uses her own car for work and in 2015/16 she undertakes 875 business miles. Her employer does not pay a mileage allowance.
Jessica is able to claim tax relief for the approved amount, which in this case is £393.75 (875 miles @ 45p per mile).
If the employer pays a mileage allowance but the mileage allowance is less than the approved amount, the employee can claim tax relief equal to the difference between the approved amount and the mileage allowance paid by the employee.
Jake uses his own car for work. In 2015/16 he drives 11,450 business miles. His employer pays a mileage allowance of 20p per mile.
The approved amount is £4,862.50 ((10,000 miles @ 45p per mile) + (1,450 miles @ 25p per mile)).
Jake received a mileage allowance of £2,290 (11,450 miles @ 20p per mile).
Jake can claim tax relief for the difference, i.e. £2,572.50 (£4,862.50 - £2290).
If the employer pays a mileage allowance at least equal to the approved amount, no tax relief is due. Any amounts paid in excess of the approved amount are taxable.
Making the claim
Claims of up to £2,500 can be made either on form P87 or on the self-assessment tax return. Where the claim is for more than £2,500, it must be made on the self-assessment tax return.
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