Self Assessment Mileage Allowance

Understanding Self-Assessment Mileage Allowance in the UK: A Comprehensive Guide

Navigating the complexities of the UK tax system can be daunting, especially when it comes to understanding how to claim mileage allowances. For many self-employed individuals, freelancers, and employees who use their personal vehicles for work-related travel, the mileage allowance is a crucial aspect of their financial planning. This blog aims to provide a comprehensive guide to self-assessment mileage allowance in the UK, covering everything from the basics of what it is, how to calculate it, and the steps you need to take to ensure you’re claiming the correct amount.

What is Mileage Allowance?

Mileage allowance refers to the amount of money that an employer can pay to an employee for using their personal vehicle for business purposes without it being considered a taxable benefit. For self-employed individuals, mileage allowance is a way to claim expenses related to business travel on their tax return.

The UK tax system allows individuals to claim a certain amount per mile for business travel, which is intended to cover the costs of running a vehicle, such as fuel, insurance, maintenance, and depreciation. The amount you can claim depends on the type of vehicle you use and the number of miles you travel for business purposes.

Who Can Claim Mileage Allowance?

Mileage allowance can be claimed by:

Employees: If your employer reimburses you for business travel using your personal vehicle, the amount you receive is considered a mileage allowance. If your employer pays you less than the approved mileage allowance payment (AMAP) rates, you can claim tax relief on the difference.
Self-Employed Individuals: If you’re self-employed and use your personal vehicle for business travel, you can claim mileage as a business expense on your self-assessment tax return.
Company Directors: If you’re a director of a limited company and use your personal vehicle for business travel, you can claim mileage allowance from your company.

Approved Mileage Allowance Payment (AMAP) Rates

The UK government sets Approved Mileage Allowance Payment (AMAP) rates, which are the maximum amounts that can be paid tax-free for business travel using a personal vehicle. As of the 2023/24 tax year, the AMAP rates are:

Cars and Vans: 45p per mile for the first 10,000 business miles, and 25p per mile for each mile thereafter.
Motorcycles: 24p per mile.
Bicycles: 20p per mile.

These rates are designed to cover the running costs of the vehicle, including fuel, insurance, maintenance, and depreciation. If your employer pays you less than these rates, you can claim tax relief on the difference.

How to Calculate Mileage Allowance

Calculating your mileage allowance is relatively straightforward. Here’s how you can do it:

For Employees:

Record Your Business Miles: Keep a detailed log of all your business-related travel. This should include the date, destination, purpose of the trip, and the number of miles traveled.
Calculate the Total Miles: Add up the total number of business miles you’ve traveled during the tax year.
Apply the AMAP Rates: Multiply the number of miles by the appropriate AMAP rate. For cars and vans, remember that the rate drops to 25p per mile after the first 10,000 miles.
Compare with Employer Reimbursement: If your employer reimburses you for mileage, compare the amount they’ve paid you with the amount calculated using the AMAP rates. If your employer has paid you less, you can claim tax relief on the difference.

For Self-Employed Individuals:

Record Your Business Miles: As with employees, you need to keep a detailed log of all your business-related travel.
Calculate the Total Miles: Add up the total number of business miles you’ve traveled during the tax year.
Apply the AMAP Rates: Multiply the number of miles by the appropriate AMAP rate. For cars and vans, remember that the rate drops to 25p per mile after the first 10,000 miles.
Include in Your Self-Assessment Tax Return: When completing your self-assessment tax return, include the total amount you’ve calculated as a business expense.

Keeping Accurate Records

One of the most important aspects of claiming mileage allowance is keeping accurate records. HMRC may ask to see evidence of your business travel, so it’s essential to maintain a detailed log. Here are some tips for keeping accurate records:

Use a Mileage Logbook: A mileage logbook is a simple way to record your business travel. You can use a physical logbook or a digital app designed for this purpose.
Record Every Trip: Make sure to record every business trip, no matter how short. Include the date, destination, purpose of the trip, and the number of miles traveled.
Keep Receipts: While you don’t need to submit receipts for mileage claims, it’s a good idea to keep them as additional evidence of your business travel.
Regularly Update Your Records: Don’t leave it until the end of the tax year to update your mileage records. Make it a habit to record your trips regularly to ensure accuracy.

Claiming Mileage Allowance on Your Self-Assessment Tax Return

If you’re self-employed, you’ll need to include your mileage allowance as a business expense on your self-assessment tax return. Here’s how to do it:

Complete the Self-Employment Section: When completing your self-assessment tax return, you’ll need to fill in the self-employment section. This is where you’ll report your business income and expenses.
Enter Your Mileage Allowance: In the expenses section, you’ll need to enter the total amount you’ve calculated for your mileage allowance. This will be deducted from your business income, reducing your taxable profit.
Submit Your Tax Return: Once you’ve completed all sections of your tax return, including your mileage allowance, you can submit it to HMRC.

Tax Relief for Employees

If you’re an employee and your employer pays you less than the AMAP rates, you can claim tax relief on the difference. Here’s how to do it:

Calculate the Difference: Subtract the amount your employer has paid you from the amount calculated using the AMAP rates.
Claim Tax Relief: You can claim tax relief on the difference through your self-assessment tax return or by contacting HMRC directly.
Adjust Your Tax Code: If you’re eligible for tax relief, HMRC may adjust your tax code to reflect the amount you’re owed. This means you’ll pay less tax throughout the year.

Common Mistakes to Avoid

When claiming mileage allowance, there are several common mistakes that you should avoid:

Not Keeping Accurate Records: Failing to keep accurate records of your business travel can lead to errors in your mileage claims and potential issues with HMRC.
Claiming Personal Miles: Only business-related travel can be claimed as mileage. Personal trips, such as commuting to and from your regular place of work, cannot be claimed.
Overlooking the 10,000 Mile Threshold: For cars and vans, the AMAP rate drops to 25p per mile after the first 10,000 miles. Make sure to apply the correct rate to avoid overclaiming.
Not Claiming Tax Relief: If you’re an employee and your employer pays you less than the AMAP rates, make sure to claim tax relief on the difference.

Alternative Methods for Claiming Vehicle Expenses

While the mileage allowance is the most common method for claiming vehicle expenses, there are alternative methods that may be more suitable depending on your circumstances:

Actual Costs Method

Instead of using the mileage allowance, you can choose to claim the actual costs of running your vehicle for business purposes. This method involves keeping detailed records of all your vehicle-related expenses, including fuel, insurance, maintenance, and depreciation. You’ll then need to calculate the proportion of these costs that relate to business use.

This method can be more complex and time-consuming than using the mileage allowance, but it may result in a higher claim if your vehicle expenses are significant.

Fixed Rate Mileage Allowance

Some employers offer a fixed rate mileage allowance, which is a set amount paid per mile regardless of the actual costs of running the vehicle. If your employer offers this, you’ll need to ensure that the rate is at least equal to the AMAP rates to avoid any tax implications.

Special Considerations for Company Directors

If you’re a director of a limited company and use your personal vehicle for business travel, there are some additional considerations to keep in mind:

Claiming Mileage from Your Company: You can claim mileage allowance from your company at the AMAP rates. This means your company can reimburse you tax-free for business travel using your personal vehicle.
Reporting on Your Self-Assessment Tax Return: If you receive mileage allowance from your company, you’ll need to report this on your self-assessment tax return. However, as long as the amount paid does not exceed the AMAP rates, it will not be considered a taxable benefit.
Using a Company Vehicle: If you use a company vehicle for both business and personal travel, you’ll need to report this as a benefit in kind on your self-assessment tax return. The amount you’ll need to pay tax on will depend on the vehicle’s CO2 emissions and the proportion of personal use.

Impact of Electric Vehicles

With the increasing popularity of electric vehicles (EVs), it’s important to consider how they affect mileage allowance claims. The AMAP rates for electric vehicles are the same as for petrol or diesel vehicles, but there are some additional factors to consider:

Lower Running Costs: Electric vehicles generally have lower running costs than traditional vehicles, which may mean that the AMAP rates provide more than enough to cover your expenses.
Charging Costs: If you charge your electric vehicle at home, you can include the cost of electricity used for business travel in your mileage claim. However, you’ll need to keep accurate records of your charging costs and the proportion that relates to business use.
Government Incentives: There are various government incentives available for electric vehicle owners, such as reduced road tax and grants for installing home charging points. These incentives can help offset the cost of running an electric vehicle for business purposes.

Future Changes to Mileage Allowance

The AMAP rates are reviewed periodically by the UK government, and changes can be made to reflect changes in the cost of running a vehicle. It’s important to stay up-to-date with any changes to ensure that you’re claiming the correct amount.

In recent years, there has been some discussion about whether the AMAP rates should be increased to reflect the rising cost of fuel and other vehicle-related expenses. However, as of the 2023/24 tax year, the rates remain unchanged.

Practical Tips for Maximizing Your Mileage Allowance

To ensure that you’re making the most of your mileage allowance, here are some practical tips:

Plan Your Trips: Try to combine multiple business trips into one journey to reduce the number of miles traveled. This can help you stay within the 10,000-mile threshold for the higher AMAP rate.
Use the Most Efficient Vehicle: If you have access to multiple vehicles, choose the most fuel-efficient one for business travel. This can help reduce your overall running costs and maximize your mileage allowance.
Consider Alternative Transport: For shorter trips, consider using alternative modes of transport, such as cycling or public transport. This can help reduce your mileage and save on running costs.
Review Your Expenses Regularly: Regularly review your vehicle-related expenses to ensure that you’re claiming the correct amount. If your expenses are significantly higher than the AMAP rates, you may want to consider using the actual costs method instead.

Conclusion

Understanding and claiming mileage allowance is an essential aspect of managing your finances as an employee or self-employed individual in the UK. By keeping accurate records, applying the correct AMAP rates, and staying informed about any changes to the tax system, you can ensure that you’re making the most of your mileage allowance and reducing your tax liability.

Whether you’re an employee looking to claim tax relief on your business travel or a self-employed individual seeking to maximize your business expenses, the key is to stay organized and informed. With the right approach, you can navigate the complexities of the UK tax system and make the most of your mileage allowance.

Disclaimer: This blog is intended for informational purposes only and should not be considered as financial or tax advice. The rules and rates related to mileage allowance can change, and it’s important to consult with a qualified tax professional or refer to the latest guidance from HMRC to ensure that you’re complying with the current regulations.