By: J.A.J Aaronson (2 Aug 15)
A considerable number of professions require employees to travel extensively. In the majority of cases, employers will pay their workers for the mileage that they incur while carrying out their duties. However, some individuals are not aware that there are potentially beneficial tax implications for those who travel as part of their job.
The current tax system allows for what are known as 'mileage allowance payments'. Under this system, per-mile mileage payments made by an employer to an employee are not subject to Income Tax. as long as they are paid at or below the rate set by the government.
In the first instance, it is important to note that only business travel qualifies for these tax-exempt payments; if you also use a Company Car for personal purposes, tax exemptions will not apply to mileage incurred as a result of non-business activities. Even factoring this in, however, the mileage allowance payments system can still represent a significant tax saving.
Statutory Mileage RatesThe government has established 'statutory mileage rates', which determine the acceptable amount that can be paid to an employee per mile of business travel. These rates differ depending on the vehicle used, and the number of miles for which a claim is being made. The following rates apply to 2012/13:
- For business travel in cars, the first 10,000 miles can be paid at 45 pence per mile, and all subsequent miles at 25 pence per mile.
- Travel on a motor cycle or bicycle, regardless of the number of miles travelled, can be paid at 24 and 20 pence per mile respectively.
The Inland Revenue form P87
provides an opportunity for employees to list their employment-related expenses for the purpose of tax relief. Information concerning business mileage should be given on this form.
The form requires you to give details of your business travel, including the number of miles travelled using each type of vehicle. You will then be required to calculate the total amount of tax relief to which you are entitled.
Any mileage allowance payments made by your employer are tax free by default. On your P87 form you must, therefore, provide the total sum received in the tax year in such payments. This will then be deducted from your total earnings, along with any other Expenses That Attract Exemptions. to establish your total tax liability for the year.
In many cases, however, employees do not receive as much tax relief as they are entitled to. The total relief available is based not on the mileage allowance payments received from your employer, but on the total number of miles you have travelled. As such, if you have received allowance payments for fewer miles than you have travelled, you will be entitled to further relief.
The Inland Revenue will multiply the number of miles travelled by the relevant statutory mileage rate to calculate your total exemption. From this will be subtracted any mileage allowance payments that you have received. The resulting sum will be your remaining exemption. This can be offset against other employment related earnings.
You may find it useful to download the P87 form from the Inland Revenue website in advance of your annual tax return. Finally, as with any tax matters, your Tax Office will be able to assist you with any queries.