What is Mileage Allowance relief?
If your employees are using their own vehicles at work, they could benefit from a tax-free allowance.
Employees who use their own car at work can under certain circumstances be paid a tax-free allowance by their employers when using their own car, van, motorcycle or bike for work purposes. This is known either as Mileage Allowance Relief or a Mileage Allowance Payment. It is important to note that this tax-free allowance, does not include journeys to and from work but is relevant to employees who use their own vehicles to do other business-related mileage.
Employers usually make payments based on a set rate per mile depending on the mode of transport used. There are approved mileage rates published by HMRC. Where the approved mileage rates are used, the payments to employees are not regarded as a taxable benefit. Any amounts paid above the approved rates, must be reported on a P11D and are a taxable benefit for an employee.
Where an employer pays less than the published rates, the employee can make a tax claim for the shortfall using mileage allowance relief. For cars, the approved mileage allowance payment for the first 10,000 business miles is 45p per mile and 25p per mile for every additional business mile. An equivalent system at 20p per mile is available for bicycle travel and 24p per mile for motorcycle travel.
There is an additional 5p per passenger per business mile for carrying fellow employees in a car or van on journeys, which are also work related. Only payments specifically for carrying passengers count and there is no compensating relief if you receive less than 5p.
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