Monthly Archives: December 2015

Claiming VAT Back on Mileage Allowance

Aston Martin Vantage Racing Team Car

An employer can claim input VAT back on the fuel element of the tax free Mileage Allowance and Fuel Allowance. Input tax is calculated by dividing the fuel element of the mileage allowance by 6 (for the current VAT rate of 20%).

Here is some information provided by HMRC:

The allowance paid to employees must be based on mileage actually done. Business records must be kept to back this up. The business must retain records for each employee claiming a mileage allowance to show:

  • the mileage travelled;
  • whether the journey is both business and private;
  • the cylinder capacity of the vehicle;
  • the rate of mileage allowance; and
  • the amount of input tax claimed.

HMRC officers may check what rates employers have used to calculate claimable input tax on the fuel element of mileage allowances paid to their employees. Current rates as published by motoring associations such as AA or RAC are generally acceptable. HMRC will also accept HMRC’s own advisory rates which are published twice a year and can be found at Company Cars – advisory fuel rates.

Some employers cap employees to a particular level of allowance. For example, the employer may decide that employees with cars with engines over 2000cc will receive only the rate paid for vehicles between 1400 and 2000cc. If this happens HMRC will only allow input tax recovery on the mileage rate that the employer has paid to the employee.

Speak to your accountant for specific advice based on your circumstances before acting on the information above

 

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Tax Free Mileage Allowance

Aston Martin Vantage Racing Team Car

HMRC allows you to pay your employees and directors a tax free mileage allowance for using their own vehicle for business journeys. Provided the payments are no more than HMRC’s mileage approved rates below there will be no tax to pay on the payments and they do not have to be reported as a benefit on forms P9D or P11D.

Below is information provided by HMRC:

Mileage Allowance Payments

Mileage Allowance Payments (MAPs) are what you pay your employee for using their own vehicle for business journeys.

You’re allowed to pay your employee a certain amount of MAPs each year without having to report them to HMRC. This is called an ‘approved amount’.

Work out the Value

To calculate the ‘approved amount’, multiply your employee’s business travel miles for the year by the rate per mile for their vehicle below.

Tax free rates per business mile

Type of vehicle First 10,000 miles Above 10,000 miles
Cars and vans 45p (40p before 2011 to 2012) 25p
Motorcycles 24p 24p
Bikes 20p 20p

Example:

The employee travels 12,000 business miles in their car – the approved amount for the year would be £5,000 (10,000 x 45p plus 2,000 x 25p).

Passenger payments

If your employee carries another employee in their own car or van on a business journey, you can pay them passenger payments of up to 5p per mile tax-free.

It does not matter if your employee uses more than one vehicle in a year – it’s all calculated together.

What to report to HMRC and pay

Who gets the benefit What to do What to pay
Employees at a rate of less than £8,500 a year Report on form P9D Add anything above the ‘approved amount’ to the employee’s pay, and deduct and pay tax as normal
Employees at a rate of £8,500 or more a year Report on form P11D Add anything above the ‘approved amount’ to the employee’s pay, and deduct and pay tax as normal
Directors Report on form P11D Add anything above the ‘approved amount’ to the employee’s pay, and deduct and pay tax as normal

Anything below the ‘approved amount’

If your employee gets paid less than the above rates, you won’t have to report to HMRC or pay tax, but:

  • your employee will be able to get tax relief (called Mileage Allowance Relief, or MAR) on the unused balance of the approved amount
  • you can make separate optional reports to HMRC of any such unused balances under a scheme called the Mileage Allowance Relief Optional Reporting Scheme (MARORS) – contact your HMRC office to join the scheme.

Speak to your accountant for specific advice based on your circumstances before acting on the information above

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New Advisory Fuel Rates

Aston Martin Vantage Racing Team Car

From 1 December, 2015, HMRC lowered the Advisory Fuel Rates (AFR) applying to employees and owner directors using a company car.

 

 

Advisory Fuel Rates from 1 December 2015

These rates apply from 1 December 2015. You can use the previous rates for up to 1 month from the date the new rates apply.

Engine size Petrol – amount per mile LPG – amount per mile
1400cc or less 11 pence 7 pence
1401cc to 2000cc 13 pence 9 pence
Over 2000cc 20 pence 13 pence
Engine size Diesel – amount per mile
1600cc or less 9 pence
1601cc to 2000cc 11 pence
Over 2000cc 13 pence

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Below is information provided by HMRC:

When you can use the mileage rates

The rates only apply when you either:

  • reimburse employees for business travel in their company cars
  • require employees to repay the cost of fuel used for private travel

You must not use these rates in any other circumstances. If you use them correctly you will not need to apply for a dispensation to cover the payments you make.

Reimburse employees for business travel in their company cars

If you pay a rate per mile for business travel no higher than the AFR, for the particular engine size and fuel type, HM Revenue and Customs (HMRC) will accept there is no taxable profit and no Class 1A National Insurance to pay.

You can use your own rates which better reflect your circumstances if, for example, your cars are more fuel efficient, or if the cost of business travel is higher than the guideline rates.

If you pay rates that are higher than the advisory rates and can’t demonstrate the fuel cost per mile is higher, there is no fuel benefit charge if the mileage payments are solely for miles of business travel. Instead, you will have to treat any excess as taxable profit and as earnings for Class 1 National Insurance purposes.

Require employees to repay the cost of fuel used for private travel

If you have correctly recorded all miles of private travel and used the correct rate (or anything higher) to work out the cost of fuel used for private travel that the employee must repay to you, HMRC will accept there is no fuel benefit charge.

The advisory rates will not be binding where you can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile.

 

 

 

 

 

 

Remember to speak to your accountant before acting on the above information

 

 

 

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