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What pence per mile should I be paying my drivers?
Story: admin | Posted 14 February 2012 | In Business Car Finance, Business Car Management, SME Advice, Tax, Tax Allowances, What Can I Claim?, Your SME Motoring Questions
Business mileage: the AMAP rate is 45p a mile
A small business company director wants to know the correct business mileage rate for paying staff in their own cars
RECENTLY my employees have been moaning about the pence per mile rate I pay them for business mileage. At 25p a mile is this too little and should I be paying them more?
Ralph Morton, editor of Business Car Manager, provides the answer on business mileage.
THERE is no right or wrong on this. The actual Approved Mileage Allowance Payment is 45p per mile (from 06 April 2011, 40p until that date), and this can be claimed tax-free by your staff. Although, given the cost of fuel, it is perhaps not surprising that your staff are feeling slightly shortchanged and grumpy.
However, if you pay less, you should make it clear to your staff that they can claim the difference between what you pay – in this case 25p – and the Approved Mileage Allowance Payment (AMAP), which is 45p for the first 10,000 miles: so in your example it is 20p per mile. This relief is called Mileage Allowance Relief.
Both from the perspective of your staff – and you as an employer – there is no tax payable, as long as the approved amount is not exceeded. Beyond 45ppm the employee’s excess will be liable to tax and the excess to National Insurance.
AMAPs can only be paid for business journeys undertaken in a private car. These include journeys made between premises or journeys made to a temporary workplace.
AMAPs can be paid for staff using their own car (45p per mile for the first 10,000 miles, 25p per mile thereafter); if they take a passenger, add an additional 5p per mile; for motorcycles it is 24p per mile; and for cycles 20p per miles.
The allowance is a personal one. So if a staffer changes their car during the tax year, the AMAP allowance does not re-set to zero on the new car.
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E Hayes
Commented on
I work as a gas service engineer. I do 50,000 miles a year for work with all my tools and test equipment. I am thinking of using my own car,supplying all the fuel and expenses. What should I expect to clam per mile?
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Ralph
Commented on
If you use your own car for business, you will be able to claim 45 pence per mile for the first 10,000 miles, and then 25 pence per mile for each mile thereafter. These are tax free and known as Approved Mileage Allowance Payments (AMAPS).
So, if you do cover 50,000 business miles, that will be 10,000 miles x 45ppm = £4500, and 40,000 miles x 25ppm = £10,000. A total of £14,500.
However, you will need to make sure that you record your business mileage for each individual business journey if you are claiming at 50,000 miles a year in order to satisfy HMRC.
You will also not be able to claim for any other motoring expenses if you use these AMAP payments.
Before you take any further decisions, take advice from a professional adviser, such as your accountant.
Ralph Morton, editor
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E Hayes
Commented on
thanks for your reply it was a great help
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mandy johnstone
Commented on
I use my own car for work and are given 40.9p per mile plus a car allowance of £80 per month. I am taxed on the car allowance. My employer is looking to reduce the mileage to 25p per mile, can we claim the difference between 25p and the new allowance of 45p as the above example and pay tax on the car allowance as we do now?
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Colin Tourick
Commented on
Yes, you can claim the difference from HMRC.
However, you should note that you will not receive the full difference, but only at the rate at which you pay tax.
So if you claim for 5000 miles at 20p per mile (the difference between the AMAP rate and the 25p per mile you will be paid) that comes to £1000 x Tax Rate 20% = £200
This may seem a bit counter-intuitive but it’s entirely logical.
When your employer gives you a tax-free cash payment at the AMAP rate the tax you’re saving is the tax on that payment. So HMRC is giving you a tax break of 20% or 40% of that payment.
If your employer gave you less than the AMAP rate HMRC will acknowledge this and give you back tax relief on that shortfall, ie the shortfall multiplied by your marginal tax rate. If they paid more they’d be subsidising the employer’s fuel costs at full market rate.
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