Business Mileage Rates – Who Can Claim And How Much Does HMRC Allow?
If you choose to become self-employed whether as the director of your own limited company or as a sole trader, then you can easily claim back business mileage. Claiming business mileage can greatly help in reducing the amount of tax that you have to pay since this is considered as an allowable business expense.
Most business owners, especially the new ones are struggling in understanding the records that they need to keep as well as in recording their business mileage, however, it does not have to be this way.
Here, we are going to learn what business mileage is all about and what are the present HMRC mileage rates are, at the same time, we will teach you how you can make a mileage claim.
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What Is Classified As Business Mileage?
One of the most important expenses for contractors, sole traders, and directors of their own limited companies is business mileage, however, most often it is overlooked.
Business mileage includes all the travels that you have made for business purposes like visiting a client. Be sure to claim only the trips that are considered as “wholly and exclusively” for business purposes. This excludes any personal trips as well as daily commute.
Since business mileage is considered as an expense, then it can reduce the profits of your company, as a result, the amount of your tax due at the end of the year will also be reduced. In other words, claiming business miles is good news for you and your business.
Who Are The Ones That Can Claim Business Mileage?
Business mileage can be claimed by self-employed, sole traders as well as company directors. If you have employees then they can claim from you since you are the employer. However, there are instances that you were unable to provide them with business mileage payment or you have not given them the amount authorised by HMRC based on mileage rates. When this happens the difference can be claimed at HMRC at the end of the tax year.
How Much Is The Amount That Can Be Claimed As Business Mileage?
Typically, it is ideal to use the Approved Mileage Allowance Payments or AMAP rates from HMRC when claiming back your mileage. For more details about AMAP rates, you can visit Gov.uk. Take note that the AMAP rates incorporate the general running expenses of your car such as insurance and maintenance.
To give you an idea, here are the present HMRC business mileage rates for vans, cars, motorcycles, and bikes.
For the first 10,000 miles, the rate for cars and vans is £0.45, the rate for motorcycles is £0.24 while the rate for bikes is £0.20.
On the other hand, for more than 10,000 miles, the rate for cars and vans is £0.25, the rate for motorcycles is £0.24 while the rate for bikes is £0.20.
Take note that mileage for bikes can only be claimed by limited companies and not sole traders. It is quite unfortunate that HMRC does not permit sole traders to claim business mileage when they are using a bicycle. This is not good for those who are green-minded as well as for cycle couriers. However, you are allowed to claim for the costs of purchasing a bicycle for work as well as for its consumables like maintenance and tyres. Most likely, the amount of your claim can be reduced due to the personal use of the bicycle. It is recommended that you should get some advice from your local tax office or from an accountant in order to validate what you can claim.
It is crucial that you should keep a record of all your business trips since these can be used as proof to support any claim you make.
What Proof Is Needed In Claiming Business Mileage?
Luckily, the process is very simple. In order to make sure that you can claim back business mileage as a director of your limited company, sole trader, or for your employees, then you should keep two records. These are the number of miles covered by the business trip as well as a log of the date and location for every business trip.
How To Compute Business Mileage Costs
One of the easiest ways of recording your business trips and calculating the amount that you can claim is to use a business mileage claim spreadsheet. Make sure that it has a professional format, so you can easily claim back your business mileage costs. It is also greatly recommended that you should create a system wherein you can regularly record expense claims as well as the payment for the costs, maybe this can be done on a monthly basis.
HMRC will conduct an inspection on your entire claim system to check if it fits the purpose. This means any pertinent receipts must be kept to serve as support for the corresponding claims. The amount of the expenses that are recorded in sole trader records or company accounts must match the amount that will be claimed back. That is why it is important that you should retain all relevant records whether you are a sole trader, a director of a limited company, or an employee claiming business mileage expenses.
My New Business Does Not Have Enough Funds For Reimbursing Mileage Expenses
As a brand new business, most often, you have some expenses that you need to pay before you start earning some money for the company. When it comes to business expense claims, you have two possible options. First, you have to wait until such time that your business has already generated the essential income and then claim. The second option is to offer your own working capital into your company and then later on you can pay yourself back. This capital will be shown as a capital offered by the sole trader to the business or as a loan from the director to the company.
What Are HMRC Advisory Fuel Rates?
HMRC Advisory Fuel Rates are the approved amounts to be used when reclaiming fuel for business mileage when using the company car. HMRC will conduct a review on these rates each quarter.
Take note that these rates are only appropriate for Standard Rate VAT registered companies. Moreover, they are the basis for calculating the following:
- The amount that the employers will reimburse their employees with regards to their business trips using company cars.
- The amount of VAT that needs to be reclaimed on business mileage when using a personal vehicle.
- The amount that the employees have to reimburse employers for using company cars in their private travels.
The following are the Advisory Fuel rates that are used from September 1, 2020:
For vehicles with an engine size of 1,400cc or less, the rates are 10p for Petrol, 7p for LPG, and 4p for Electric.
For vehicles with an engine size of 1,600cc or less, the rates are 8p for Diesel and 4p for Electric.
For vehicles with an engine size between 1,401cc and 2,000cc, the rates are 12p for Petrol, 8p for LPG, and 4p for Electric.
For vehicles with an engine size between 1,601cc and 2,000cc, the rates are 10p for Diesel, and 4p for Electric.
Finally, for vehicles with an engine size of more than 2,000cc, the rates are 17p for Petrol, 12p for Diesel, 12p for LPG, and 4p for Electric.
Take note that Electric refers to fully electric cars only. In the case of Hybrid cars, they will claim for petrol or diesel rate. Furthermore, electricity is not classified as a fuel for automobile fuel benefit purposes.
If you want to know the previous Advisory Fuel Rates, then you can visit the Gov.uk website.
The advisory fuel rates above can be used for computing the percentage of the business mileage rate that applies to fuel as well as for computing the VAT on that fuel element.
How Do Advisory Fuel Rates Work In Practice?
Example One – Reclaiming VAT On Mileage
Jane’s own car has an engine capacity of 2500cc, she placed petrol fuel on it and went on to travel 100 miles.
Based on the Advisory Fuel Rates above, the rate for vehicles with more than 2000cc is 17p per mile for petrol. In this situation, £17 will be allocated to the fuel, instead of the total mileage claim of £45. £17 is considered as VAT inclusive. This means £17 is the equivalent of 120% of the fuel cost. In order to compute the VAT element, the figure should be divided by 6, which results in an amount of £2.83.
Example Two – Payment For Employer Using Personal Fuel On A Company Car
John uses the company car with a diesel engine and 1600cc capacity for a round trip to see his relatives. He travelled for 50 miles which will be computed at an advisory rate of 8p per mile. This means the John is obliged to make a payment of £4.00 for the personal trip.
Example Three – Employee Is Claiming Mileage On A Company Car
Helen drove her company car with an engine capacity of 1650cc. She purchased diesel for it then travelled 300 miles for work. Using the advisory rate of 10p per mile, Helen should be reimbursed by her employer the amount of £30 for business miles.