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HMRC and mileage

Need to know tax implications for employer and employees on mileage rates

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Looking to pay flat 35ppm for all business mileage. Employees drive between 15-20k miles per annum.

What are the rules / tax implications for both employer and employees by doing it this way, versus paying 45ppm down to 25ppm after 10k?

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RLI
By lionofludesch
29th Oct 2018 18:26

Should be no problem until your employees hit 20000 miles.

They should be able to claim relief on any deficit compared to HMRC rates - but that's their problem, not yours.

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Replying to lionofludesch:
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By JJBarrow
30th Oct 2018 06:44

So basically unless they are paid above the equivalent amount under AMAP there’s no affect to them or us?

In theory I could pay them £4,500 for 1 mile and then nothing for the next 9,999? (I obviously wouldn’t do that though!).

What happens if they go above 20k miles with 35ppm?

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Replying to JJBarrow:
RLI
By lionofludesch
30th Oct 2018 07:33

Of course not. You need to keep on the low side of HMRC rates. At £4500 for the first mile, you'd be above.

Any excess over the allowed rate is taxed in the same was as extra pay. Which is what it is.

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Replying to lionofludesch:
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By JJBarrow
30th Oct 2018 13:16

Sure. Sorry if my example was ridiculous.

So basically then, the level of a flat ppm rate is irrelevant for taxation purposes so long as it does not exceed the approved amount translated in cash? And anything under that amount can be claimed through tax relief.

So for 15k miles paying 39ppm would be virtually the same as 45 down to 25ppm after 10k?

Is there a sum rule which can be used to calculate the equivalent flat rate for projected mileage versus the approved amount? Makes it easier than trying to track when employees meet the threshold.

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Replying to JJBarrow:
RLI
By lionofludesch
30th Oct 2018 14:01

JJBarrow wrote:

Sure. Sorry if my example was ridiculous.


£4500 or £4.50, the principle would be the same.

Seriously, I'd stick with HMRC rules. It could all go badly wrong if your "projections" are wrong for any reason.

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By MeMyselfI
29th Oct 2018 19:30

No effect on Employer until 20k miles pa, then P11D.

Effect on employee:
Claim extra 45p/25p relief up to 19999 miles pa.

pa being tax years.

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By possep
30th Oct 2018 12:59

Pay at the AMR or below to avoid the possibility of P11Ds. Otherwise you will have some needing a P11D where the mileage is over 20,000.

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Routemaster image
By tom123
30th Oct 2018 13:25

Just keep a track of the miles - no mileage claim equals no payment.

What would happen, in your example, when you get leavers etc. If someone left before having done 10k miles you have 'under' paid them.

It is a shame the rule is such a mess, but there it is.

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By ringi
30th Oct 2018 16:03

The issue is that you are making your Employees contact HMRC to get their tax sorted out, and they may hate you for it.

Your employees may also be confused about their tax and expect you to answer their questions.

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By KenW
01st Nov 2018 11:57

If I've understood correctly, you're wanting to use a flat rate of 35ppm to avoid tracking when the employees cross the 10,000 miles threshold and the rate changes from 45ppm to 25ppm.

I think there are some risks that are worth considering (my personal view) -

1. If an employee exceeds 20,000 miles then there is income tax and NI on each additional mile at 10ppm, significantly increasing the admin burden and mildly increasing your business costs. It will also be a tricky conversation with the employee explaining why they are paying tax & NI on their 'tax-free' mileage expenses.

2. Employees not reaching 20,000 miles will be able to claim the difference on their tax return, possibly when they don't normally need to complete a tax return. They may feel they are subsidising the business. You are also giving them a financial incentive to reach and exceed 20,000 miles in a year, which will increase your business costs.

3. If the business booms and several employees exceed the 20,000 miles, then the business will be hit by additional employer's NI costs by paying 35ppm.

These risks can be removed by paying the HMRC rate of 45ppm for 10,000 miles and then 25ppm.

Tracking the 10,000 mile threshold isn't too hard, there are lots of mileage spreadsheets out there that can be used for expense claims by staff and the spreadsheets track the threshold. There are apps too (I work for one), but these are generally paid for. If you're looking at mileage expenses, have a look at claiming VAT on the mileage too - it can save your business hundreds of pounds in VAT.

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Replying to KenW:
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By Adam12345
01st Nov 2018 12:18

Paying 35p per mile will have no national insurance consequences. Even if the employee did do 100,000 qualifying business miles.

For national insurance, there is no 'step down' to 25p at 10,000 miles like there is for income tax, just a straight 45p per mile.

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Replying to Adam12345:
By KenW
01st Nov 2018 15:04

Thanks for clarifying that Adam.

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