The Ins and Outs of Mileage Rates

As HMRC seem to have a vendetta against cars, it is often not tax efficient for a business to own a car and pay for all of the running costs, when it is made available for private use, unless you want a low emissions car (below 95 g/km), and who wants one of those?

It is often easier, and more tax efficient, for directors and employees to use their own private cars and then repay them a mileage rate for any business mileage they may incur. The approved rate for this is a maximum of £0.45 per mile, for the first 10,000 miles, followed by £0.25 per mile for anything over the 10,000.

One common mistake that is made is thinking that the 10,000 miles relates to the year end of the business, it does not, it in fact relates the tax year (6th April to 5th April following).

If a director or employee has private use of a company car but has to pay for all of the fuel themselves, they can be reimbursed for fuel used on business mileage, just at a lower rate set by HMRC dependent on engine size and fuel type of the car.  For example a 1,995cc diesel car would attract a mileage rate of £0.10 and a 1,995cc petrol car would attract a mileage rate of £0.12.  To see how other engine sizes and fuel types compare, please use the following link https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016.

One of the downfalls of claiming for business mileage is the need to keep detailed records which should include:

  • Date the journey was made
  • How many business miles were covered
  • Brief description of why the journey was made

Now this doesn’t seem like a lot, but if a lot of business miles are incurred by many employees then it can become an administrative nightmare!

If you would like to discuss any of _DSC1606the items discussed above then please contact us.

Phil Hinde, Accounts & Tax 

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