If you use your own vehicle for business use – either within your own business or as an employee working for someone else – you will be aware of the concept of being repaid for the mileage you do on a ‘pence per mile’ basis. The following is a simple explanation of how this may affect you in the more common situations that it happens.
Premise and Limits
If you use your own vehicle for business use, you can claim the following:
For tax years up to 5 April 2011
1st 10,000 miles 40p per mile
Subsequent miles 25p per mile
For tax years from 6 April 2011
1st 10,000 miles 45p per mile
Subsequent miles 25p per mile
NB these limits are for individuals using their own car for business use. If they have a company car, the limits are different, please see here.
So how does this affect you?
Sole Trader
If you trade as a sole trader and your turnover is less than the VAT registration threshold (currently £73,000), you have the option of either claiming business mileage as described above or using the actual costs incurred, restricted for private use.
If you choose the mileage system, you have to stay with that method until you change your car.
Company Director
If you are a company director, there are many issues of having your car owned by the company. In general, due to the capital allowances for the company being poor and the creation of a Benefit in Kind, or ‘perk’, we recommend that directors retain personal ownership of their cars and claim mileage from the company.
Employer
If you are an employer, and your employees use their own cars, the limits above are just that – limits. You can pay anything up to those limits. Paying above those limits will have PAYE consequences.
Employee
If you have been paid mileage as an employee and it is below the limits mentioned above, you can claim tax relief on the balance. For example, if you have been paid 5,000 @ 30p, you can claim tax relief on 5,000 @ (40p-30p) = tax relief on £500. For a normal rate taxpayer, this would result in a tax saving of £100.
NB where you have an option in the areas surrounding mileage, such as whether to claim actual cost or mileage, whether to have a company car, or whether to pay your employee less than the limit, the generic advice above may be dependant upon your circumstances, and we would recommend that you get professional advice.