The implications of using your personal vehicle for work
Posted on 9th December 2021
It’s estimated that 14 million privately owned cars are being used for work purposes, based on the study by the Energy Saving Trust (2016). These are known as the ‘grey fleet’.
Due to company cars being treated as ‘benefits in kind’ – incurring tax for the employee/director and national insurance for the employer, it’s increasingly more cost effective to use your own car for work and claim back your mileage cost.
However, if you are interested in an electric or ultra-low emission car, a company car may still be an option. Read more here.
There are differences in the way mileage claims are prepared, submitted and paid depending on whether you’re a director/employee or self-employed. Below we detail some tax implications you need to consider when using your personal vehicle for work.
Claiming mileage – directors/employees
You should be able to claim tax relief if you use your car, van, motorcycle or even bicycle when travelling for work. This kind of travel does not include your commute; i.e. travel from your home to workplace and back (unless it meets the conditions of a temporary workplace).
Business miles include travel to see customers, to attend business meetings or training courses that are not held at your usual place of work and to deliver goods.
In order to make a mileage claim you will need to keep a record of the number of miles carried out for work and on which date.
The approved mileage allowances set out by the government are as follows:
- 45p per mile: Business mileage in your own vehicle for the first 10,000 miles driven each tax year.
- 25p per mile: Thereafter.
- 24p per mile: If you use a motorcycle for business travel, regardless of how many miles you do in each tax year.
- 20p per mile: If you use a bicycle, peddle power or electric, with no yearly distance limitation. (However, you may prefer to buy a company bicycle.)
- 2p per mile: If you transport a colleague on a work journey (this cost is exempt from Mileage Allowance Relief, see below).
These costs are intended to cover fuel, electricity (if you drive an electric vehicle or ride and electric bicycle), oil, road tax, MOTs, servicing, repairs, insurance and hire purchase loans. These rates also cover the depreciation of the vehicle.
Mileage Allowance Relief
Claiming mileage from your employer using these rates is exempt from tax. If you receive a flat fee in your paycheck to cover travel or if you’re paid against the submission of fuel receipts, you will get taxed on these. However, you can claim for Mileage Allowance Relief based on the rates laid out above by completing a P87 form.
If your employer pays less than the approved mileage rates, you can also use this form to claim the difference as an income deduction.
We ask that our clients keep a record of their mileage and provide this to us so we can include it within your company accounts. You can do this monthly, quarterly or annually.
You can then withdraw the funds from the company to reimburse yourself for the mileage costs.
Claiming mileage – self-employed
If you are self-employed and use a vehicle for work, you can also claim mileage at the approved rates shown above. This is known as the HMRC’s simplified expenses method, click here for more details.
Alongside any mileage claims for your own vehicle you can also claim for other travel modes used, e.g. plane, train or bus journeys.
If you are unsure if this way of claiming mileage id right for you, use the GOV.UK simplified expenses checker.
You may instead choose to claim capital allowances on the cost of purchasing the vehicle, and claim all actual vehicle costs – but then proportion these based on business vs personal use.
We can discuss the best option with you.
Also, you cannot use the simplified expenses for a vehicle you’ve included as an expense when working out your business profits or if you’ve already claimed capital allowances for it.
You can contact us and we’ll help you through the requirements for submitting your mileage claims.
Nicola J O'Sullivan -
Founder | Xero Champion | IR35 Expert
Tagged as: Expenses, For - Contractors, For - Limited Companies, For - Self-Employed, Travel & Motor
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