Over the past few weeks, we have seen the price of petrol and diesel substantially increase. Although the Chancellor has announced a 5p fuel duty cut, it is important that businesses and individuals are aware of the rules on business travel and the mileage allowance.
What is the mileage allowance?
In simple terms, the mileage allowance is the amount you pay yourself or your staff for using their personal vehicle for business purposes. The mileage allowance covers the cost of fuel, insurance, road tax, and general wear and tear of the vehicle.
The maximum that you can claim without having to report the amounts to HMRC are contained in the following table:
As a director of a limited company, let's assume you have traveled 15,000 business miles in your own car. The mileage allowance you would claim is £5,750 (10,000 miles x 45p + 5,000 miles x 25p). In normal circumstances, you would submit an expense claim and either pay yourself the amount owed or credit your director's loan account. The expense claims can be completed weekly, monthly, or any other period you choose. Please note that the mileage allowance is treated as a business expense and will therefore reduce your taxable profits.
If however, you are self employed, the mileage allowance is treated in a similar manner. The mileage allowance is treated as a business expense and deducted against your taxable profits. This will reduce the amount of income tax and NIC payable.
What qualifies as a business trip
An example of trips that may qualify as business travel include:
Traveling from one office to another
Traveling to a temporary location to conduct necessary business. For example, meeting a client or attending an event.
What does not qualify as a business trip
Commuting to and from your usual place of work
Any travel that is taken for a private purpose, even if an aspect of work is included such as making calls or running errands.
What evidence is required
We would recommend that you keep a mileage log that records the date of travel, the reason for travel, a to and from location, and the number of business miles traveled. This will satisfy HMRC requirements.
If you have any questions regarding the mileage allowance rules, please do not hesitate to contact us.