Dealing with HMRC mileage rates can be tricky, but it doesn't have to be a headache.
If you're looking for a simpler way to manage business travel expenses and stay on top of compliance, we've got some insights that can help.
We'll be covering:
- What are the HMRC Mileage Rates?
- What is the HMRC Mileage Allowance?
- When Can Employees Claim Business Mileage from Home?
- What is Travel Allowance in the UK?
- What are HMRC Fuel Advisory Rates?
- HMRC Mileage Rates for Electric Cars
- Taxation of HMRC Mileage Rates
- How to Apply the HMRC Business Mileage Rates: A Guide for Employers
- Keeping a Mileage Log for HMRC Compliance
Let's make managing travel expenses easier together.
What are the HMRC Mileage Rates?
The HMRC sets specific mileage rates for individuals using their personal vehicles for business purposes. These rates are designed to simplify calculating travel expenses for employers and employees, ensuring fair compensation for business use of a personal car.
Breakdown of HMRC Mileage Rates
From 2011 onwards, HMRC established clear mileage reimbursement rates for different types of vehicles, which are as follows:
Cars & vans: For the first 10,000 miles in a tax year, the rate is 45 pence per mile. Once you exceed this threshold, the rate drops to 25 pence for each additional mile.
Motorcycles: A consistent rate of 24 pence per mile applies, irrespective of the distance travelled within the tax year.
Bicycles: Cyclists can claim 20 pence per mile for business miles travelled.
The HMRC 10,000 Mile Threshold
The initial 10,000 miles are considered to bear a higher cost, accounting for the vehicle's depreciation, maintenance, and running costs.
The rate reduction beyond 10,000 miles acknowledges the supposed decrease in these costs as the vehicle ages and accumulates mileage.
What do HMRC Mileage Rates Cover?
The HMRC mileage rates are meticulously calculated to cover all expenses associated with using a personal vehicle for business purposes.
This includes, but is not limited to:
Fuel
Repairs
Maintenance
Insurance costs
The intention is to offer a straightforward, fair mechanism for employees to be reimbursed without having to detail every individual cost incurred.
What is the HMRC Mileage Allowance?
The HMRC mileage allowance is a rate set by HMRC that allows businesses in the UK to reimburse employees for the use of their personal vehicles for business purposes.
The primary goal of the mileage allowance is to provide a tax-free threshold for mileage reimbursement, ensuring that employees are compensated for the business use of their vehicles without incurring additional tax liabilities.
Tax Implications of Mileage Allowances for Employers & Employees
The HMRC mileage allowance is designed with tax efficiency in mind.
Reimbursements made at or below the HMRC-approved rates are not subject to tax or National Insurance contributions. This applies to both employers and employees, making it a tax-efficient way to handle business travel expenses.
For Employers:
Reimbursements within the HMRC rates do not incur additional tax liabilities.
Payments above the HMRC rates must be reported, and the excess is subject to tax and National Insurance contributions.
For Employees:
Receiving mileage allowance at or below the HMRC rates does not affect taxable income.
If reimbursements are below the HMRC rates, employees can claim Mileage Allowance Relief on their tax return for the difference.
When Can Employees Claim Business Mileage from Home?
The HMRC guidelines allow employees to claim mileage for travel from their home to a temporary workplace or for specific business journeys that aren't part of their regular commute.
The key criteria for these claims under the HMRC mileage rates include:
Temporary workplace visits: If you’re travelling to a location for a limited duration or for a temporary purpose, this can qualify as a claimable business journey.
Distinct business journeys: Travelling from home directly to meet clients, attend business meetings at different locations, or carry out site visits are examples of claimable business mileage.
Regular Commute vs Business Travel: The Difference
Understanding the difference between your regular commute and business travel is fundamental to making accurate claims:
Regular commute: This is travel between your home and your permanent place of work. These journeys are not claimable under HMRC mileage rates because they’re considered as non-business travel.
Business travel: This encompasses any travel that is solely for business purposes, excluding your normal commute. It's these journeys that the HMRC mileage rates aim to cover, ensuring employees are reimbursed for the additional costs incurred.
Claiming Your Business Mileage
For employees looking to claim their business mileage, here's a simplified process:
Document your journeys. Keep a detailed log of your business journeys, including dates, destinations, and miles travelled. Documentation is key to substantiating your claims.
Calculate your mileage. Use the current HMRC mileage rates to calculate your total claim amount. Remember, the rates differ depending on the vehicle used and the number of business miles covered.
Submit your claim. Provide your documented journey log and calculated mileage to your employer. Employers typically have a process in place for these reimbursements.
For employers:
Ensure clarity around what constitutes claimable business mileage and communicate this effectively to your team to streamline the reimbursement process.
Offer support and guidance on how to log and claim business mileage. This will not only ensure compliance with HMRC guidelines but also foster a transparent and supportive work environment.
What is Travel Allowance in the UK?
Travel allowance encompasses a broader spectrum of work-related travel expenses than mileage allowance. While mileage allowance specifically covers the costs of using a personal vehicle for business purposes, travel allowance can include various other travel-related expenses.
Travel Allowance vs Mileage Allowance: The Difference
The primary difference between travel and mileage allowances lies in their scope:
Mileage allowance: Directly related to the use of a personal vehicle for business journeys, calculated using the HMRC mileage rates. It's designed to cover vehicle-related costs such as fuel, maintenance, and depreciation.
Travel allowance: Encompasses a wider range of employee travel expenses incurred due to business activities. This can include public transport fares, accommodation costs, and meals during business travel, in addition to mileage costs when using public or alternative modes of transport.
Criteria for Claiming Travel Allowances
To claim travel allowances effectively, understanding the criteria set by HMRC is essential. Claims must be for expenses wholly, exclusively, and necessarily incurred in the performance of the duties of employment.
Key criteria include:
Temporary work locations: Travel expenses to and from temporary work locations can qualify for travel allowance claims.
Necessary overnight stays: Costs incurred during necessary overnight business trips, including accommodation and meals, are claimable.
Public transport usage: Expenses related to business travel via public transport, including trains, buses, and taxis, fall under travel allowance.
What is Included in the Travel Allowance UK?
Travel allowance in the UK covers a broad array of expenses, ensuring employees are not out of pocket for costs incurred due to business travel. Specifically included are:
Transport costs: Train tickets, bus fares, taxi receipts, and airline tickets for business-related travel.
Accommodation: Hotel or other lodging expenses when overnight stays are required for business purposes.
Meals and subsistence: Reasonable costs for meals during business travel, subject to HMRC guidelines.
Incidental expenses: Minor costs associated with business travel, such as internet charges at a hotel.
Both employers and employees need to keep detailed records and receipts for all travel expenses claimed under the travel allowance.
This not only ensures compliance with HMRC regulations but also facilitates a smooth reimbursement process.
What are HMRC Fuel Advisory Rates?
HMRC Fuel Advisory Rates are guidelines set for the reimbursement of fuel expenses incurred during business travel in company cars and vans. These rates are designed to:
Reimburse employees for business travel in their company vehicles.
Allow employees to repay the cost of fuel used for private travel in company vehicles.
It’s important to note that these rates should not be used in circumstances other than those specified above.
How are Fuel Advisory Rates Calculated?
The process of calculating these rates is both systematic and reflective of current market conditions.
Here’s how HMRC determines the advisory fuel rates:
Quarterly reviews: HMRC reviews the rates quarterly, considering the latest fuel prices and vehicle efficiency data.
Fuel prices: The latest prices for petrol, diesel, and LPG are obtained from reliable sources, including the Department for Energy Security and Net Zero and the Automobile Association.
Vehicle efficiency: Average miles per gallon (MPG) figures are derived from manufacturer data and adjusted for annual sales to businesses. For LPG vehicles, the MPG used is 20% lower than for petrol due to lower energy density.
Electric vehicles: The advisory rate for electric cars is calculated using electricity price data and car electrical consumption rates, ensuring a fair assessment of electric vehicle running costs.
Note: You can calculate employee car and fuel benefits using HMRC’s calculator.
Applying the HMRC Fuel Advisory Rates
Employers can apply these rates in two key scenarios:
Reimbursing employees: If the mileage rate paid to employees does not exceed the advisory fuel rates based on the engine size and fuel type of the company car, there’s no taxable profit or National Insurance contribution due.
Employees repaying for private travel: Correct recording and repayment of private travel mileage at these rates or higher ensure there’s no fuel benefit charge.
Key Points for Employers & Employees:
Employers have the flexibility to use their own rates if their vehicles are more fuel-efficient or if the cost of business travel is higher than the guideline rates, provided they can justify the higher cost per mile.
Employees must accurately record all private travel mileage and use the correct rate to calculate repayments for fuel used for private travel.
HMRC Mileage Rates for Electric Cars
Electric vehicles (EVs) offer a unique set of advantages and challenges when it comes to business travel. Recognising this, HMRC provides specific mileage rates for electric cars, distinct from those for petrol, diesel, or hybrid vehicles.
These rates are designed to account for the cost of electricity used for business travel, rather than fuel consumption, offering a fair and equitable means of reimbursement for EV users.
Impact of Electric Cars on Business Travel Expenses & Reimbursements
The adoption of electric vehicles can significantly alter the landscape of corporate travel expenses:
Cost-effectiveness: Generally, electric cars are cheaper to "fuel" compared to traditional petrol or diesel vehicles, potentially reducing overall travel expenses.
Environmental benefits: Encouraging the use of EVs aligns with corporate sustainability goals, reducing the carbon footprint associated with business travel.
Tax incentives: Utilising HMRC’s mileage rates for electric cars can also offer tax benefits, aligning financial incentives with eco-friendly practices.
What is the HMRC Mileage Rate for Electric Cars?
As of 1 March 2024, the HMRC mileage rate for fully electric cars is set at 9 pence per mile.
This rate provides a simple way for businesses and employees to calculate reimbursements for business travel using electric vehicles, ensuring that drivers are compensated for the electricity cost of their journeys.
Note: This rate is subject to periodic reviews by HMRC, reflecting changes in electricity costs and the evolving efficiency of electric vehicles. Make sure to stay updated with the latest rates to ensure compliance and maximise the benefits of integrating electric vehicles into your fleets.
Taxation of HMRC Mileage Rates
The HMRC mileage rates are designed to simplify the reimbursement process for business travel, providing a tax-efficient framework for compensating employees. But, are HMRC mileage rates taxable?
The answer hinges on adherence to the prescribed rates and the purpose of the journeys:
Non-taxable allowances: Mileage allowances paid at or below the HMRC-approved rates for business travel are not considered taxable income. These rates are calculated to cover the vehicle's operating costs, and reimbursements within these limits do not require tax payments from the employee.
Excess payments: Should an employer choose to reimburse at a rate higher than the HMRC-specified mileage rates without justifying the increased expense, the excess amount could be subject to tax and National Insurance contributions as it is considered earnings.
Employer Reporting Obligations
Employers play a crucial role in ensuring the tax efficiency of mileage reimbursements:
P11D forms: When providing mileage allowances, employers must report any amounts that exceed the approved HMRC mileage rates on the employee's P11D form. This form details benefits and expenses that have not been subject to PAYE tax.
PAYE Settlement Agreements: In some cases, employers may opt to cover the tax on excess mileage payments through a PAYE Settlement Agreement (PSA). This agreement allows the employer to make one annual payment to HMRC covering all taxes due on minor, irregular, or impracticable employee expenses or benefits, including mileage rate excesses.
Are HMRC Mileage Rates Taxable?
As long as mileage allowances do not exceed the prescribed rates for the actual business miles travelled, they remain tax-free.
This approach incentivises the accurate recording and reporting of business travel, aligning employee reimbursements with actual travel costs without additional tax burdens.
How to Apply the HMRC Business Mileage Rates: A Guide for Employers
Understanding how to apply HMRC mileage rates correctly not only aligns with legal requirements but also supports fair and transparent compensation for employees using their personal vehicles for work.
Here's a step-by-step guide tailored for employers on applying HMRC mileage rates:
Step 1: Understand the Rates
Familiarise yourself with the current HMRC mileage rates for cars, vans, motorcycles, and bicycles.
These rates are designed to cover the cost of using personal vehicles for business purposes, including fuel, maintenance, and wear and tear.
Step 2: Establish a Policy
Develop a clear corporate expense policy on business mileage that includes how and when mileage can be claimed, the documentation required for claims, and how the HMRC mileage rates will be applied within your organisation.
Need help building your expense policy? Use our free expenses policy template.
Step 3: Educate Your Team
Ensure that all employees understand the policy, the importance of accurate mileage tracking, and how to submit mileage claims.
Clear communication prevents misunderstandings and promotes compliance.
Step 4: Implement Mileage Tracking
Encourage employees to keep detailed logs of their business mileage.
Whether through manual logs or digital tools, accurate records are crucial for compliance and reimbursement.
Step 5: Verify & Calculate Reimbursements
Review submitted mileage logs for accuracy and calculate reimbursements using the HMRC mileage rates.
Ensure that claims are justified and fall within the guidelines provided by HMRC.
Step 6: Process Reimbursements
Timely process mileage expense claims, providing reimbursements through payroll or as a separate payment, according to your business practices.
Keeping a Mileage Log for HMRC Compliance
Let's break down why keeping a detailed mileage log is crucial and how digital tools can make this task simpler and more reliable:
The Benefits of Keeping Detailed Mileage Logs
Ensuring tax compliance: Precise mileage logs are your safeguard against tax issues. They serve as solid evidence that supports your travel expense claims according to HMRC mileage rates, ensuring you stay on the right side of tax laws.
Guaranteeing correct reimbursements: For both individuals and businesses, accurate logs mean accurate reimbursements. No guesswork involved - every mile travelled for business is accounted for and compensated correctly.
Preparedness for audits: Should HMRC inquire further into your travel claims, a comprehensive mileage log provides a clear, detailed account of your business journeys, proving that your claims are justified and compliant.
How Technology Simplifies Mileage Tracking
Gone are the days of pen and paper logs - technology offers a streamlined, error-minimising approach to mileage tracking.
One standout solution is ExpenseIn, an expense management solution that embodies efficiency and compliance in mileage tracking.
Why Choose ExpenseIn for Your Mileage Tracking Needs?
Automated journey tracking: Utilise GPS technology to automatically record your trips' start and end points, ensuring every business mile is accurately captured without manual input.
HMRC-compliant mileage logs: Generate logs that meet HMRC's strict requirements, detailing every aspect of your business travel, from dates and distances to the purpose of each journey.
Ease of use and integration: With user-friendly interfaces and compatibility with various financial systems, tools like ExpenseIn make mileage logging accessible and straightforward, no matter where you are.
Moving to a digital mileage log system is not just about compliance; it's about embracing a solution that offers clarity, convenience, and confidence in every mile you log for business.
Ready to transform how you track mileage? Take the first step with ExpenseIn. Book a demo today and discover how our tool can simplify your mileage logging, ensure HMRC compliance, and save you time and money.
