Business Mileage Rate – All You Need to Know

Mileage allowance

If you run a business, one of the latest practices that you should be aware of is the provision of mileage allowance for your employees. However, implementing the mileage allowance benefit can be quite confusing because the HMRC has many rules related to mileage allowance.

Journeys that can fall into the category of business-related should be only when the employee is either travelling from one office to other office or when an employee has to travel to a location (temporary) other than his usual workplace to meet a client or to attend a business event.

Also, it is not possible to claim the mileage allowance payment if the employees journey is essentially a daily commute between office and his residence or any place which is not an office or the journey is very short or is a private affair with just one or two work-related halts. So, just read on to navigate your way through providing mileage allowances to your employees if you’re a business owner.

Mileage allowance payments (MAPs)

If you’re a business owner, then as the employer, you’re not obligated to make mileage allowance payments, also known as MAPs to your employees. However, there are many employers who do choose to offer this advantage to their employees.

The thing about MAPs is that if employers pay at the same rate or below the HMRC’s prescribed rate to their employees, it doesn’t need to be reported to the HMRC. However, as a business owner in the UK, you’re also free to reimburse your employees with MAP rates that are above the rate given by the HMRC.

However, you must remember that if your mileage allowance rate is higher than the rate provided by the HMRC, the excess allowance will be considered to be a personal benefit for your employees and it’ll be a taxable benefit for them.

What’s regarded as an MAP?

As an employer in the UK, remember the following points as they state what is actually considered to be a mileage allowance payment:

● Monthly payments made by the employer to their employees based on business mileage.
● A monthly amount that is given to employees, which covers vehicle costs that are based on an estimation of business mileage.
● A monthly payment made to employees based on the fuel rate per mile and other vehicular expenses.

Keeping the aforementioned pointers in mind, these are the following costs that are covered by MAPs:

● Vehicle servicing expenses
● Vehicle repair expenses
● Insurance
● Road tax
● Maintenance costs
● Depreciation
Now here are the expenses that aren’t covered by MAPs:
● Congestion charges
● Parking fees
● Tunnel, road, and bridge tolls
● Road offenses (including but not limited to parking fines and speeding tickets)

Approved mileage rates by HMRC

Mileage rates approved by HMRC for the 1st 10,000 business miles are as follows:

• Cars and vans: 45 pence
• Motorcycles: 24 pence
• Bicycles: 20 pence

Mileage rates approved by HMRC after the 1st 10,000 business miles are as follows:

• Cars and vans: 25 pence
• Motorcycles: 24 pence
• Bicycles: 20 pence

Requirements for receiving MAP

Here are important pointers to understand how much and when you’ll be eligible to receive mileage allowance in the UK from your employer:

● The MAP for any employee in the UK will be provided based on the business mileage of the employee multiplied by the mileage rate provided by the employer. For example, if the reimbursement rate is £0.40/mile and the business mileage is 500 miles, then MAP= £500×0.40.
● MAP will not vary depending on the number of vehicles driven by an employee. It’ll be solely based on the number of miles driven by an employee for business purposes.
● Employees have to submit documents to their employers in the UK to receive this reimbursement.

The documents include:
○ Purpose of the trip
○ Date of the business trip
○ Start address and end address of every work-related trip (including postcodes).
● MAP doesn’t cover costs such as private mileage and ordinary commuting to work and from work as these aren’t considered to be business trips.

Claiming MAP from HMRC

Employees who receive MAPs from their employers at rates lower than the stated mileage rate from the HMRC can directly claim MAR (Mileage Allowance Relief) from the HMRC. MAR will be in the form of tax deductions on the MAP received by an employee. Self-employed individuals can claim MAR by multiplying the MAP rate given by the HMRC with the number of business miles travelled by them.
Utilizing this benefit can help to save a significant amount of money!