Hi there and welcome to our quick training guide on car usage and mileage allowance or car usage allowance for yourself, either in your business or in your employer’s business. So we’re going to be looking at this in two different ways. The first one is if you’re an employee, so whether this is a benefit in kind for you or whether it is normal work, et cetera. So whether you get paid for it or not pay for it, whether you can claim extra money for it, or whether you have to declare it on a tax return. And the second group of people we’re looking at is the self-employed and the implications for them. So we’re going to first start off with being an employee.
So normally, if employer requires you to go out on business, they would normally allow you to charge them back at the mileage rate, but some employers you don’t, and they expect you to do it as a matter of course on your business. Sometimes they might pay you for it, but they might not pay you the full amount. So these are the things we need to be concerned about. If your travel expenses are reimbursed by your employer and they do it at the company mileage rate, which is the same as the HMRC rate, then you have nothing to worry about, it’s not a taxable benefit, it’s not something you have to create a tax return for, you can just say thank you very much and be on your way. So if that’s you, bye. What you must remember is home to workplace is not something you would normally claim from your employer. And if you have to do extra [inaudible 00:01:53] for your employment, then you should not be trying to reclaim this. So there are times that a company will not to pay you the same amount as the HMRC rate.
HMRC Mileage Rate: (Cars & Vans)
So what’s the HMRC rate? I hear you say. Well for a car or a van, it is 45 pence a mile for the first 10,000 miles and after that, it’s 25p a mile because HMRC consider that the wear and tear costs of the car have been used up in the first 10,000 miles. So that’s why it’s at a much higher rate.
HMRC Mileage Rate: (Motorbikes)
For a motor bike it is 24p a mile and that’s irrespective of the number of miles you do. And for a bicycle, it is 20 pence a mile, again, irrespective of how many miles you do.
We are going to be looking at the car or the van situation, what you need to make sure you do is you need to keep a mileage log of all the business miles you have travelled. The mileage log has to consist of the date. You did the trip, start and end address, which could just be the postcode and the house number, et cetera, and the miles per journey and the total of business miles in the year.
So if you’re not sure, and you forgot to look at your odometer, then you could just put in the postcode of where you started and the postcode of where you ended and use Google maps as the thing to jot it down with which way you go. Obviously there are other mapping softwares out there. This will only give you the most direct point or reasonable points, if you go a 20 mile distance that you took the wrong road or the road was closed, you had to make a detour, using the postcodes won’t actually give you the most accurate mileage that you did. So it’s always best to keep some kind of pen and paper, et cetera, near you, so you can record the miles. Okay. So that is the basic process in that just record the number of business miles you’ve done, recharge the company if they allow you to and Bob’s your uncle.
However, that might not always be the case. So you often get companies that don’t reimburse at the business mileage rate caused by HMRC. So if they pay you more than the 45p a mile standard rate, then that becomes what we call a P11D benefits. So your employer should fill out a benefit form, which says, “Oh you’ve had more money than you should have had.” So 50 per mile, when you’ve done a thousand miles in total. So that’s 5 pence a mile that you would have to pay tax on for those mileage. Okay. So they should complete a P11D form, give it to you by the 5th of July for review and they will then submit that to HMRC and you’ll eventually get a tax demand for whatever percentage tax rates you’re on for that P11D benefit.
Now if you are paid less than the standard 40p a mile, you are able to claim tax relief on it. If you don’t have to do a self-assessment tax return, then you can complete a P87, so exciting, isn’t it? You can prepare a P87 and send that to the tax man, he will then adjust your tax coding next year and effects for you, you will be a year behind, but you will get a tax benefit from it. Okay. Now, at times, employers might not pay any business mileage, so providing you can prove that it was for the business going through a temporary place of work, you can clean 40p a mile, put it on a P87 and with any luck you might be able to get a tax refund rather than an adjustment of your tax code, but that’s something you’ll have to talk about to the tax office.
Now I’ve put that, “Beware of temporary place of employment.” Because you might be based in an office in Birmingham, but for a certain period of time, your employer might say, “No, can you go to Manchester on a daily basis?” And that would be your temporary place of employment for a project. So that’s all very well and if they don’t pay any mileage towards it, you can claim the mileage or you can claim a proportion of it, et cetera, if they do pay for some of it. But what you have to be aware of is if that temporary place of work exceeds 24 months, it then becomes a permanent place of work and you will not be able to make any claim of mileage or any claim of travel, et cetera, to get to that place of work, because it’s then deemed as a permanent place of work.
So that is going to affect you, if you are being paid underneath the mileage rate and your employer should be aware of the rules, if they are employing you and paying you mileage to get to that temporary place of work. But this has been quite a cause of concern for a lot of people over the last few tax years and HMRC are really pulling it up on it and researching it as to whether it should be being claimed or not. So there are the points with employees, normally it’s straightforward, no benefit because they’re paying you on a bog standard HMRC rate, or if you’re being paid less, you can claim on a P87 form for this extra bit of benefit or if you’re paid more a P11D will be created, so you get taxed on it.
So then move to the self-employed. Okay. So there are two methods of calculation for the self employed. You knew there would be, there wouldn’t be just one method, would there? No, there are two methods. So what you have is method number one is a simplified expenses rule. Simplified expenses means it’s just the bulk standard mileage rate, exactly the same as employees. So 45p a mile or 25p a mile if you’ve done over 10,000 miles. A motorbike is 24p a mile, irrespective of the number of miles you do. And the bicycle is the iffy one, bicycles have not been mentioned in the self-employed mileage guide. We don’t know why, we think it’s just a misprint, an oversight by HMRC and it’s not in their self-employment manual, but what we’ve turned around and said, as accounting bodies is, “You want to treat employees and self-employed the same.”
Therefore, we are claiming 20p a mile for the bicycle cost, but just be aware that if you are claiming for bikes, technically it’s not there as allowable, but most of accountants are putting it in. And again, you need to keep a mileage log of your business miles, exactly the same as employees. So now you can see why we were including bicycles because they’re treating them exactly the same. You need the date of the journey, the start and end address could be by postcode and the miles per journey and the total business miles in the year. So that’s it, exactly the same, nothing hard.
Now what you must remember, if you are claiming a mileage rate as a self-employed person, this covers all the costs of the car and the bike, et cetera. No other costs can be claimed. So it covers your DVLA, your road tax, your car insurance, any maintenance and repairs, fuel for the vehicle, tyres, the furry dice that float in the window, anything cost-wise to do with the car, including any lease payments get involved in that and the actual cost of purchasing the car, because it includes the wear and tear. Okay. So unless you have a gas guzzler or something that’s permanent in for repair, this often is the best method to use.
e interest payments on that lease. So not the actual lease payment, but it does depend on the lease type. Okay. So they are your running costs of the car. So it is a simple multiplication out to total running costs for the car for the year multiplied by the business percentage, you’ve already calculated up here and that is your business use of the car. Now you can claim a capital allowance on the purchase of the vehicle.
So now we go onto the much more complicated method two, this is not available for employees, it is only for the self-employed. So the actual cost method is you look at your actual costs of running the car, allocate the business miles to it, and then go, “Here we go, this is the amount to have.” It’s not a let’s suck a finger figure out the air and see what percentage I might want to claim. You do actually have to do some leg work. It still requires a mileage log for the total number of miles driven in the tax year and the total number of business miles you have travelled in that tax year. So you get two mileage figures and then you take the business miles divided by the total miles tracked in the business year and that gives you a percentage of the costs that you can have with regard to the car.
Okay. If you have two cars, you will need to do exactly the same thi
ng for both cars. So you collect the number of miles on the 6th of April, the number of miles on the following 5th of April and that gives you the total miles that car has travelled, do it for both cars. And then you can have a log of how many miles you have travelled in each car that was related to your self employed business. Don’t forget self-employed business travel miles could be even the simple things of going to the bank to pay a cheque in, if anyone still pays by cheque, travel to gigs, rehearsals, research venues, the bookkeeper, anything like that is related to the business. And the purpose if that journey was a business journey, not, “I’m going to see Aunt Ethel, oh, by the way, I’ll pop my paperwork into the accountant on the way back.”That won’t be a business trip, but if it was a trip to the accountant, great and if you happen to call back at a supermarket to do a shop, then that’s incidental.
So the type of costs you need to collect are the fuel for running the car, any car insurance, road tax, maintenance, servicing, repairs, tyres break down costs and if you are buying it on a lease, depending on the lease, you can also claim a deduction for the interest payments on that lease. So not the actual lease payment, but it does depend on the lease type. Okay. So they are your running costs of the car. So it is a simple multiplication out to total running costs for the car for the year multiplied by the business percentage, you’ve already calculated up here and that is your business use of the car. Now you can claim a capital allowance on the purchase of the vehicle.
So let’s say it cost you 5,000 pounds and it is not a low emissions car. Then you would claim 6% because rates have changed recently, 6% on the value of the car. So you’ve purchased it for 5,000 pounds in year one. You could claim 6% of that 5,000 pounds, and then you also need to reduce it by the business use. So it might be a case of 6% on 5,000 pounds, 300 quid. You only use it 20% of the time. So, 330, yes, 10%. So 60 pounds will be your capital allowance claim on the purchase of the vehicle. With lease payments, it does depend on whether you are keeping the car at the end and it becomes yours, or whether you give it back. So if it remains your current, the end, it just the total cost or the purchase price of the car that you capitalise and then you have the interest payments going in.
If you don’t retain the car at the end, then you can claim the cost of the lease as part of your running costs of the car. So it gets very complicated and you will not have a capital allowance on the purchase cost. Okay. You might want to replay that bit several times. Again, you must keep all receipts of all your costs. If you’re only doing mileage, you just need to keep evidence of fuel that you have put into the car to prove you’ve put fuel into the car and able to claim the mileage allowance. So that’s the complicated method. So you do have to keep good records, keep your receipts of all your costs and keep a detailed mileage log of what you are doing in terms of business miles and your total miles for the tax year.
Now, some added interesting things for the self-employed. If you are billing any mileage as a performer to your end client, then that is classed as income, purely then that you can then connect your income with whoever you’ve billed their costs and it ties up 100%. So you could also obviously offset that mileage cost as part of your expenses. So don’t forget that bit, you treat it as income and you treat it as expenses. Now some places I know, if you are a music teacher, teach at a music centre, they might turn around to say, “Yes, we will pay for your travel cost to get here, but we’re only going to pay after you’ve travelled for 50 miles.” So very unfair, I think, but that’s my own opinion. So if you travel 100 miles, you can only bill 50 miles. So the 50 miles would appear as your income, but you can claim 100 miles as your expenses.
Okay. I’ll just repeat that. If there is a limit to what the people you are doing the work for will pay you. So they say, “We will only pay your travel costs after the first 50 miles.” Then you bill them the travel costs after 50 miles, but you can put through your business, the costs of your travel at 100 miles. Okay. Some places say after the first 100 miles, then we’ll pay your travel, some people don’t dictate that at all. And it’s purely down to how you’ve negotiated that contract. The 24 month rule applies big time for self-employed people. So if you’ve been going somewhere for more than 24 months, or it’s likely to go more than 24 months, you cannot claim your travel costs to it because it’s then deemed as a permanent place of work. The caveat is, it has to be more than 40% of your self-employed time.
So it’s really worth keeping some kinds of time sheets as to what you’re spending and how much you’re doing for each contract, et cetera. Now there’s always a discussion point to where really is the musician’s place of work or an actor’s place of work? Is it based at their home because they are self-employed, so they work out of their home or is it actually based at the theatre or the concert hall? Because they can’t perform without being with the other people at their rehearsal venue. It’s always a debate. Good luck with that one, but I always base it on, you are based at home, that is where you’re registered, that’s where you do all your work in terms of research, getting stuff done, et cetera, potentially teaching and going out to the theatres to play in or orchestras. Yep, that is where you are going to work with other people, but it’s not your normal place of work.
There are a few ways you can collect this data. If you are a techie person, there’s two apps I would recommend. One is called Tripcatcher and one is called MileIQ. This is based on your phone and it’s normally tracked through GPS. So it will follow the exact route you take, rather than having to sit on a mapping piece of software and put the postcode starting and the postcode end, because that won’t pull up your actual journey. So I do recommend investing in these apps, but obviously only if you can afford it, I think Tripcatcher is something like 1.79 pound, I can’t remember what MileIQ is.
Or there’s the old fashioned way of just having an exercise book in the car, so when you start your journey, you record the start mileage, then record the end mileage when you get to where you’ve got to go to, don’t forget the round trip and then add that up at the end of the year and that will give you your mileage. So still depending on which method you’re going to use, collect your dormitory reading as at the 6th of April, and then 5th of April in the following year. As usual, any problems, my contact details are on the website. Then please feel free to get in touch.