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WHAT’s the difference between Mileage Allowance Relief and Approved Mileage Allowance Payments?

Mileage Allowance Relief allows employees to claim the difference between what they receive in business mileage or fuel costs from their employer and what is approved by HMRC.

The MAR rate is set at:

  • 45p for the first 10,000 business miles and
  • 25p per business mile thereafter in the tax year.

These are actually the same rates as applied to Approved Mileage Allowance Payments (AMAP).

AMAPs are paid in full as part of an Optimised Cash Scheme, there is no further relief available through MAR and employees do not have to worry about making annual claims.

For example, 10,000 business miles compensated at 12p per mile by an employer will enable the employee to claim tax relief on the balance of 33ppm.

For a 20% taxpayer this amounts to £660 a year.

Allowance and mileage reimbursement

Although the MAR rates are the same as those used for AMAPs, the latter is not a relief but a limit to which an employer can pay for business miles without incurring tax or National Insurance Contributions

Whether paying AMAPs or business fuel/mileage expenses  it is essential that employers maintain proper records for both HMRC compliance and for employees to be able to claim MAR.

Where a cash allowance is offered in lieu of a company car and employees then use their own cars for business, a good number of them will not claim the Mileage Allowance Relief that is available to them.

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You should be aware of this when you fill in your Self-Assessment tax return.

Claiming car mileage allowance

Can you opt out of a company car scheme?

As an example, you do around 12,000 business miles a year and get an allowance of £375 ab month less tax at 40%, can you then  claim a mileage allowance of approximately 12ppm, dependent on the engine and fuel costs?

With a fixed allowance can you still claim relief at 40% on the difference between 12ppm and the Approved Mileage Allowance Payments of 45ppm for the first 10,000 miles and then 25ppm thereafter?

The allowance is £225 net x 12 = £2700 plus 12000 x 12ppm = £1440 total, £4140 to run the car for business miles, which is not enough.

Can you claim the difference between 45ppm (25ppm) and the 12ppm variable or is the fixed allowance worked into the calculation in some way?

Or is that allowance just considered more salary as it is taxed and subject to National Insurance and not linked to the car expenses?

Well, the £375 is treated as additional salary and will be subject to tax and NI in the normal way.

Your employer will then pay you 12p per business mile allowing you to claim tax relief on the balance through your tax return: 33p up to 10,000 miles and 13p thereafter.

 


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