Mileage relief: what it is and how it is calculated | tide business (2023)

July 12, 2022 | construction consultant8 minutes reading time

As a small business owner, you want to get the most out of your business expenses. Applying for a tax exemption for your business' ongoing expenses is a great way to save money, stabilize your cash flow, and make sure you're paying taxes correctly.

Spending isn't just limited to the supplies and services you need to run your business. You can also claim the mileage allowance for journeys that you and your employees undertake on business.

Understanding how tax benefits can be claimed requires additional administration and extensive bookkeeping. But with a little organization, you can take full advantage of this program and give your small business an extra financial boost.

In this article, we cover what the mileage discount is, who it applies to, and how it can benefit you and your employees.

Best tip:Tracking and claiming business expenses is a great way to improve the financial health of your small business. This can help you save money and ensure you pay taxes correctly. You can find out what costs are incurred and what you can claim in our guideWhat is spend and how can small businesses manage it?📣

Table of contents

• What is the Mileage Excess Waiver? a quick explanation
• What is the current mileage allowance in 2022?
• How to calculate the mileage discount
• Apply for the waiver of the mileage allowance in your self-assessment
• Manage your financial health with mileage exemption

What is the Mileage Excess Waiver? a quick explanation

The mileage waiver is a tax deduction that employees can claim if they incur business miles. They can only claim it if their employer has not reimbursed the full amount.

Employers can offerMileage Allocation Payments (MAP)for employees who use their own vehicle for work. HMRC sets Approved Mileage Rates. Employers can then pay employees for travel up to specified limits without having to record tax payments (this is known as the "allowable amount").

However, employers are not required to pay MAPs. If they offer no payment or only part payment, staff can claim the allowable amount from HMRC.

As a self-employed person, you can also claim the mileage allowance at the end of the tax year (depending on your other claims). Find out more about how to claim these expenses as a self-employed person atREGIERUNG.UK.

Best tip:Mileage allowance is not the only expense you can claim. You can also recover many other costs of running and growing your business through tax benefit programs. Our guide tells you what claims you can make and how to get a refundWhat are reimbursable expenses and how do you claim them?✅

When can someone claim mileage credit?

Anyone using yourspersonal vehicleYou can claim travel expenses for business purposes.

Note that this excludes company vehicles. There is a separate tax regime for employers that covers company car fuel consumption, and company cars and fixed budgets for fuel will continue to be taxed.

The purpose of the mileage allowance is to align with current tax laws, which state that the cost of running a business is tax-free. Approved mileage payments cover expenses in the form of road tax, vehicle wear and tear, insurance and fuel.

Employees whose employers do not pay approved mileage rates in full can claim the balance due on tax returns and HMRC will pay the difference. Likewise, small business owners and freelancers who use their personal vehicles for work can claim expenses at the end of the tax year.

Best tip:Invest in managing your expenses and build healthy cash flow by keeping an expense log. Organizing and streamlining your process in this way will help you plan for long-term business growth. Learn all about expense records in our guide toCreate an expense report step by step📈

What entitles you to a kilometer exemption?

You cannot claim all business travel as a business expense. HMRC setsclear guidelinesabout what types of business travel qualify. For example, you can apply for a tax exemption if:

• Meet a client for work
• Must travel back and forth between the office and another workplace to get a job done
• Travel to a temporary place of work (e.g. to an external conference or event)

For example, as a director of your company, you must attend regular board meetings. It has several regional offices and meetings are held in a different office each month.

As this is a mandatory meeting and the workplace changes regularly, it is a temporary workplace. Therefore, you can redeem the miles each month for travel between your home and the meeting.

Travel that is non-refundable in 2022 includes situations such as:

• Your standard commute between your regular work and home
• Private way from work (e.g. picking up the children from the day care center)
• business errands on a private trip

For example, you ask an employee to stop on their way home from the office and pick up a print job. It's a normal part of their business trips and they weren't just there to print. Therefore, they are not eligible for the mileage waiver on this trip.

Best tip:If you are an employer, you do not have to reimburse your employees for kilometers. However, it is an untaxed expense that companies can claim. Learn more about how to calculate them and when to report them in our guideHMRC mileage rates🚗

What is the current mileage allowance in 2022?

HMRC mileage rates are fixed, but the specific rate claimed depends on the type of vehicle you drive. Note that after the first 10,000 business miles of the fiscal year, there is also a change in the reimbursement amount for cars and trucks.

These are the current prices for 2022:

How to calculate the mileage discount

The mileage allowance compensates for the mileage allowance not paid by the employer. It is standard practice for employers to provide the MAP, but it is not mandatory. And there are no requirements to pay the full amount permitted by HMRC, so some employers may choose to pay less than the permitted rate.

You can claim the difference between what your employer paid you and what HMRC allows at the end of the year. It might seem a little daunting trying to figure out the numbers, but it's not that complicated once you break them down. Here it ishow to calculate the mileage allowancebecause of your circumstances.

If you have not received payments from an employer

The math here is pretty simple. Anyone who did not receive a MAP during the year but used the vehicle for work can claim the total permissible amount.

Let's say you drove your car 14,000 miles on business trips in the last fiscal year. Using the standard 2022 deductible mileage rates, you would calculate the total benefit you can claim as follows:

10.000 x 0,45 £ = 4.500 £
4,000 (the number of business miles driven in 10,000) x £0.25 = £1,000
The total relief you can claim is:
4500 £ + 1000 £ = 5500 £

If you have received a partial payment from an employer

Employees can request an exemption from any unpaid portion of the mileage allowance if an employer offers less than the full rate.

For example, if an employee drives 8,000 miles to work in their own car and their employer only pays 20p per mile, the employee is entitled to the remaining 25p per mile.

The mileage allowance that this employee can claim:
8,000 (miles driven) x £0.25 (amount still eligible for mileage allowance) = £2,000

When the same employee has driven 12,000 miles in a year, the calculations get a bit more complicated. In this case, you are entitled to a different amount for all miles over 10,000.

So the difference between the subsidy and what was paid is just 5p per kilometer. This is how this employee would calculate this total.

10.000 x 0,25 £ = 2.500 £
2,000 (the number of miles driven in 10,000) x £0.05 = £100
The total amount that this employee can claim is:
2500 £ + 100 £ = 2600 £

Best tip:Good accounting practices are essential for tracking and organizing mileage and other business expenses. Learn more about small business accounting and which methods work best for your business with our complete guideSmall Business Accounting💡

Apply for exemption from the mileage allowance in your self-assessment tax return

To receive approved mileage payments, you must apply to HMRC at the end of the tax year.

If you don't normally file a tax return (i.e. your employer pays your taxes through the PAYE system), you will need to fill out a separate form. you can fillForm P87on the HMRC website to claim miles when claiming expenses of less than £2,500.

If your claims exceed £2,500 you will need to file a reverse charge tax return.

Best tip:Completing a self-assessment tax return is required if you are claiming more than £2,500, but also if you are self-employed or have other sources of income outside of PAYE. Learn everything you need to know about recording and archiving with our complete guide toEverything you need to know about self-assessment tax returns📌

Where to record the mileage excess waiver on your self-certification

When you fill out your reverse charge tax return online, you will find an area to record your expensesOn page. Please note that you can only claim expenses if you opt out of the £1,000 business flat rate.

Records you are required to keep for your mileage exemption

For any type of claim, you must provide accurate records of your travel expenses (just like an employer paying a mileage allowance).

HMRC requires the following records when claiming your Miles:

• The travel date
• The start and end addresses (including zip codes) for each trip
• Distance traveled per trip
• The total amount of the mileage allowance you received from your employer.

You can simplify the recording process by using an app with mileage tracking capabilities. This saves time and ensures accuracy.

Applications likedriver notice,EverlancejMileIQAutomatically track expenses and create tax-compliant records. So all you have to do is enter the data.

If you're self-employed, consider using an expense card to track fuel consumption.Tide Expense CardsIt makes it easy to scan receipts into the Tide mobile app, and transactions sync directly to your accounting software.

Best tip:Using apps and software is a great way to simplify all of your expense management. Learn more about how the right software can help you accurately track your spend and reduce your administrative burden with our guidehow to manage employee expenses🔖

Manage your financial health with mileage exemption

Applying for an exemption from your mileage allowance takes effort and organization, but it can be a huge boon to your finances. It's a great way to reduce your tax bills and keep more of your hard-earned income.

Make it easy to pay less tax by simplifying your bookkeeping. Automate your company's expense management by afree business accountwith Tide today and reduce the time spent managing your books and manually tracking expenses.

Photo by Jan Baborák, published inUnsplash