Using Private Vehicles For Business – What Can Staff Claim Back Tax Free?Written on September 25, 2014 by Kirk Rice LLP
Taxing Times QuestionsThe Question:
Some of my employees use their private cars for business use. What is the current rate I can pay them tax free and is it possible to pay an approximate lump sum each year which, administratively, would be a lot easier?
Kirk Rice LLP answers:
Employers may reimburse specified amounts per business mile driven in a privately owned vehicle (car or van), without causing the director or employee concerned to incur a tax charge. The amounts allowed are as follows;
- For the first 10,000 miles 45p per mile
- For additional miles 25p per mile
(NB people who use private motorcycles can claim 24p per mile)
Given that a uniform rate is paid per mile irrespective of the size of car, it follows that those employees who drive small cars can do well financially if they are reimbursed at the full rate. Drivers of larger cars tend to lose out as 45p per mile does not typically cover the true overall cost of running a large car. This is deliberate, to encourage the purchase and use of environmentally friendly vehicles.
Some employers will pay a fixed sum to acknowledge the fact that an employee is prepared to use his or her own car for business purposes, typically followed by a lower rate per business mile travelled. Tax law looks at the mileage travelled by the employee ‘in the tax year’. It follows that the lump sum will not in itself cause complications, as long as the payment is specifically made in respect of business travel. What is still required is to compare the total payments made for the year, including the lump sum, with the amount that could be reimbursed using the figures shown above. If an excessive amount is paid, the excess will be taxable. If there is a shortfall, tax relief may be available.
However, there is a word of warning here as HMRC have stated that ‘where an employer pays a fixed sum per month that is not calculated on the basis of expected business mileage, it cannot later reclassify part of the sum as being paid for expenses. Its nature is fixed when paid.’ It would therefore be prudent if a lump sum is to be made to ensure that it is made on account of expected future business mileage and is broadly calculated accordingly.
If you would like more advice regarding this issue or any other financial services matter, please contact us.
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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
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