Fueling costs are much higher than they were a few years back. If you are on a job post that requires travelling, fuel expenses will cost you half of your pay. Managing such expenses is difficult, with a limited amount paid to you by the company. Companies include mileage allowance in their pay to compensate for the fueling costs to employees. In this article, we will be discussing what is mileage allowance, what is the highest or lowest limit of mileage allowance is, and what its perspectives are in the UK.

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What is the Mileage Allowance in the UK?

A mileage allowance is the amount of money paid to an employee by the company if the employee uses his conveyance for official trips. Mileage allowance is the term employed by the government for giving deductible tax relief to employees who use their vehicles for official trips. The mileage allowance gives financial security to the employees along with exposure to new professional opportunities, building new professional ties, and strengthening already existing ones. There is a limit on mileage allowance for each mile travelled by the employee on his vehicle.

What is the Mileage Allowance as an Employer?

As a company owner, it is not your utmost duty to pay for mileage employees travel for official purposes. However, most of the company employers do this to keep their employees motivated and loving their work. Companies also pay their employees a mileage allowance as this amount comes under the tax-deductible quota. The allowance amount may vary from the set limit by the HMRC, depending on the company. If the company pays a higher amount per mile covered by the employee, the difference from the set limit will be counted as an extra benefit to the employee from the company. There will be a tax on that amount by the HMRC, and the employees are liable to pay the due tax amount. What is the mileage allowance that you are expected to pay to your employee? You can calculate it from the UK government website.

For mileage allowance from the employer, the employees have to provide documentation of travelling and the cost of fuel used. It is crucial to keep records of the mileage allowances given to employees; this will be helpful when the audit of the company is carried out at the end of the financial year.

What are the Important Points to Keep in Mind by the Employees?

The employees should be mindful of the following points while considering mileage allowance from the company.

• The employees should know the mileage allowance payment rate by the company per mile traveled.
• The employees should know the minimum and maximum limits of miles for which the company is paying a mileage allowance.
• The employees should know the mileage allowance set amount by the HMRC and the rate that the company is paying them. They should be aware that they will have to pay tax on the extra amount paid by the company.
• If the company is paying the exact amount set by the HMRC, then there will be no extra tax payable by the employees.
• If the company is paying an amount less than the set limit, the employees are not liable to pay tax on the mileage allowance they have received; instead, they can claim Mileage Allowance Relief.

What is the Mileage Allowance for Self-Employed?

If you are self-employed, you are still allowed to enjoy the benefits of mileage allowance for yourself. This can be done in two ways.

1- Actual vehicle cost method

In this method, you can include each cent spent during the travelling period. In this method, you can claim

• Fuel
• Insurance
• Car maintenance
• Breakdown cover
• Licence fee
• Car parking charges

While this method gives the flexibility of adding almost everything in actual costs, this method can be lengthy while filing your tax return at the end of the financial year since you have to keep and enter details of each receipt for proper documentation.

2- The simplified expenses method

As the name indicates, the simplified expenses method is simpler in calculations than the actual vehicle cost method. In this method, a set rate for mileage allowance per mile by HMRC is applied to calculate the amount of mileage allowance claim. The HMRC rate covers fuel, car maintenance, depreciation, toll tax, and car parking charges.

Work out the Value for Mileage Allowance

What is the mileage allowance for tours by your employees in the last 6 months? The UK government has set out the criteria under HMRC for calculating the mileage allowance. This is categorised as follows.

• For the first 10,000 miles, in the case of cars and vans, it will be 45p
• For above 10,000 miles, in the case of cars and vans, it will be 25p
• For Motorcycles first 10,000 miles, it will be 24p
• For above 10,000 miles, in the case of motorcycles, it will be 24p
• For the first 10,000 miles, in the case of bikes, it will be 20p
• For above 10,000 miles, in the case of bikes, it will be 20p

Rules for National Insurance on Mileage Allowance in the UK

In the UK, the government keeps a record of each penny, where it is spent, and whether it comes under the payable tax amount. Similarly, you might be liable to pay national insurance on relevant motoring expenditures, which include:

• Mileage allowance payment made by the company to you
• Payments more than the mileage allowance set rate by the HMRC
• Other payments that are done in cash by the company when you use your personal vehicle

However, there is a limit on motoring revenue expenditure that will be exempted from the national insurance amount. This amount is labeled as a qualifying amount.

Work out the Value for National Insurance on Mileage Allowance

The following are the set criteria for national insurance by HMRC:

• Type of vehicle and every business mile
• cars and vans, 45p
• motorcycle, 24p
• bikes, 20p

If the amount paid by the company is more than the qualifying amount, then the employee will pay the due national insurance amount. If the total amount does not exceed the HMRC set value, the employee will not pay any tax or national insurance amount.

1- Passenger payments

The passenger payments are due in case the employees are taking along other employees in their vehicle. The company can pay the compensation amount of 5p to the employee for each person on the official tour. The passenger payments up to 5p are tax-free, so there is no need to report this amount to HMRC while filing a tax return at the end of the financial year. For each passenger, there is no equivalent amount payable under mileage allowance relief.

2- Company cars

As we have discussed everything from an employee perspective, what is the mileage allowance on company cars? This amount is based on the type of car, fuel used, and amount of CO₂ emitted during the travel.

The Bottom Line

The mileage allowance is given to employees by the company if they are using their vehicle for company purposes. There is a set limit for the mileage allowance for a certain number of miles covered and the type of vehicle used. The HMRC has set a limit on the amount per mile for each type of vehicle. There is a different condition if the allowance company is paying it more or less than the set limit. If the allowance paid by the company is more than the set limit, then the exceeding amount will come under the payable tax amount. The tax will be charged to employees. However, if the amount paid is less than the set limit, the employee will pay no tax and no national insurance.

Reach out to our intelligent and clever-minded guys to get the answer to your queries in the UK, we will get to your answers quickly. We will help to decide how to deal with your tax implications.

Disclaimer: The general information provided in this blog about what is mileage allowance includes text and graphics. It does not intend to disregard any of the professional advice in the future as well.