Here’s the latest information on mileage rates for company cars, including the new coronavirus measures and what’s happening with the Advisory Electricity Rate for electric cars.

Company car mileage rates update

The company car benefit tax charge does not cover fuel provided for a company vehicle. This means that where an employer pays for all fuel (business and private), a statutory fuel scale benefit charge will be payable, based on the cash equivalent of the benefit each tax year (£24,500 for 2020/21) multiplied by a percentage depending on the car’s CO2 emissions.

If the company pays for all fuel, but the employee reimburses the company for private use, as long as the amount paid back is equal to, or more than, the amount for personal fuel in the same tax year, the employer will not have to pay anything to HMRC or report on such transactions.

Where the employer does not directly meet the cost of fuel used for business in a company car, but pays the employee a business mileage allowance, no fuel benefit charge will arise if the mileage allowance does no more than meet the cost of fuel used for business travel. If the mileage allowance is excessive, but it’s only paid for genuine business travel, the ‘profit element’ will be chargeable to tax in the normal way. However, a car fuel benefit charge will arise where, for instance, the payments to the employee cover travel between home and work.

HMRC publish rates that can be used by employers wishing to pay their employees the cost of fuel for business journeys in company cars (or, where the employer initially pays for all fuel, for reimbursement of private mileage by company car drivers to their employers). Hybrid cars are treated as petrol or diesel cars for this purpose.

Rates applying from 1 June 2020 are as follows:

Engine sizePetrolDieselLPG
1400cc or less10p6p
1600cc or less8p
1401cc to 2000cc12p8p
1601cc to 2000cc9p
Over 2000cc17p12p11p

 

HMRC’s guidance on fuel-only mileage rates for company cars confirms that employers are not obliged to use advisory fuel rates. Where an employer wishes to use them, they only apply where the employer:

  • reimburses employees for business travel in their company cars; or
  • requires employees to repay the cost of fuel used for private travel in those company cars.

If the employer pays more than the relevant advisory fuels rates and the payments are not an actual reimbursement, the excess is taxed (and subject to employees’ and employers’ National Insurance Contributions).

Coronavirus measures

For employees using company cars, an employer may agree to refund the fuel costs using the advisory fuel rates, of employees carrying out volunteer work related to coronavirus, for example, delivering medical supplies including PPE. These refunds are a benefit and the employer may settle any tax and National Insurance contributions on the employee’s behalf by reporting through a PAYE Settlement Agreement.

The employer may also agree to fund the cost of fuel for volunteer mileage related to coronavirus. HMRC have advised that volunteer mileage should not be taken into account for the purposes of the car fuel benefit charge for company cars.

Any tax and National Insurance contributions due should be reported through a PAYE Settlement Agreement as a coronavirus related benefit based on the appropriate advisory fuel rate for the volunteer mileage.

Electric cars

An Advisory Electricity Rate has been introduced for electric cars. The current rate is 4p per mile, though it should be noted that electricity is not a fuel for car fuel benefit purposes.

Where an individual is provided with workplace facilities for charging a battery of a vehicle used by them (including as a passenger), no taxable benefit arises for costs relating to the provision of electricity at those facilities if the following conditions are met:

  • the charging facilities must be provided at or near an employee’s workplace
  • charging must be available to either all the employer’s employees generally, or all the employer’s employees generally at the employee’s workplace
  • charging facilities must be for a battery of a vehicle in which the employee is either the driver or a passenger.

The benefit will remain taxable if it’s offered in conjunction with an optional remuneration arrangement.

Partner Note: ITEPA 2003, ss 150 – 152, 237A; FA 2019, s 8(1)

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It can pay off to keep track of your business mileage you incur for your rental properties – here’s why.

Using your car in your property rental business

Landlords will often use their car for the purposes of their property rental business. Where they do so, they are able to claim a deduction for the costs that they incur.

Using mileage rates

Where a landlord uses their car for business purposes, the easiest way to work out the amount that can be deducted is to make use of the simplified expenses system and use the relevant mileage rates to claim a deduction based on the business mileage undertaken.

For cars (and also vans) the rate is set at 45p per mile for the first 10,000 business miles in the tax year and at 25p per mile for any subsequent business mileage.

Example

Karen is an unincorporated landlord and has three properties that she lets out. During the tax year, she undertakes 712 business miles in her own car in respect of her property business.

She claims a deduction of 45p per mile, a total deduction for the year of £320.40.

Deduction based on actual costs

The use of simplified expenses, while generally easier from an administration perspective, is not compulsory. The landlord can instead claim a deduction based on the actual costs. However, in practice this will be time consuming. Further, where the car is used for both business and private travel, a deduction is only permitted for the business element. Separating actual costs between business and private travel can be very time consuming and will only be worthwhile where it gives rise to a significantly higher deduction than that obtained by using the mileage rates.

Capital allowances

Capital allowances cannot be claimed where mileage allowances are claimed. Where a deduction is based on actual costs, capital allowances can be claimed in respect of the car. However, the claim must be adjusted to reflect any private use. So, for example, if a car is used for the purposes of the property business 20% of the time and for private use 80% of the claim, any capital allowance claim must be restricted to 20%.

Other travel

The costs of travel on public transport or by taxi can be deducted in computing the profits of the property rental business to the extent that it constitutes business travel for the purposes of that business.

Partner note: ITTOIA 2005, s. 94D

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Here’s how to reduce business and household costs by using simplified expenses

Simplified expenses for smaller businesses
Certain unincorporated small businesses may choose to use the ‘cash basis’ when calculating taxable income, under which participants are taxed on the basis of the cash that passes through their books, rather than being asked to undertake complex and time-consuming calculations designed for big businesses. Whilst easing the administrative burdens of preparing ‘traditional’ accounts, using the cash basis can also help with cash flow as it will not be necessary to accrue for income not yet received, or expenditure not paid out.
To complement the cash basis, HMRC also introduced ‘simplified expenses’ for small businesses. Basically, instead of working out the exact cost of certain expenses, HMRC allow the business to deduct a standard, or flat rate amount. Simplified expenses can apply to the following expenses:
• standard mileage rate for business use of cars or motorcycles;
• flat rate expenses for business use of home; and
• flat rate adjustment for personal use of business premises.
The taxpayer should, where relevant, record business miles for vehicles, hours worked at home and the number of people living at the business premises during the course of the tax year. At the end of the tax year, HMRC’s flat rates are used to work out the expenses, which are then included on the self-assessment tax return.

Vehicles
HMRC’s flat rate mileage allowances are designed to cover all vehicle-related running costs (insurance, repairs, servicing, fuel etc.). Current rates are as follows:
• first 10,000 miles               45p per mile
• exceeding 10,000 miles    25p per mile
• Motorcycles                        24p per mile
Using mileage rates is not obligatory, but once they have been used for a vehicle, they must continue to be used for as long the vehicle is used for the business.
Other travel expenses – train journeys, parking and such like – may be claimed on top of the mileage rates.
Where a car is purchased for business use, capital allowances may be claimed, but only if simplified expenses are not being used to work out business expenses for that vehicle.

Business use of home
A monthly deduction will be allowable if certain criteria are satisfied. Current rates are as follows:

Number of hours worked Monthly amount
25 to 50                                    £10.00
51 to 100                                  £18.00
101 or more                              £26.00

The number of hours worked in a month is the number of hours spent wholly and exclusively on work done by the person, or any employee of the person, in the person’s home wholly and exclusively for the purposes of the trade.

Mixed use
Where premises are used for both business and private purposes, instead of making the standard deduction outlined above, the business can make a deduction for the non-business use. The allowable deduction will therefore be the amount of the expenses incurred, less the non-business use amount. The non-business use amount is the sum of the applicable amounts (see below) for each month, or part of a month, falling within the period in question (usually the tax year). The applicable amounts are as follows:

Number of relevant occupants Applicable amount
1                                                               £350
2                                                                 £500
3 or more                                               £650

A relevant occupant is someone who occupies the premises as a home, or someone who stays at the premises otherwise than in the course of the trade.

Benefits
Simplified expenses may help reduce business and household costs, without needing to retain the associated paperwork. However, like any flat-rate scheme, simplified expenses may result in an increased tax liability. The scheme may not be for everyone and certain checks should therefore be made before using it.

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Don’t pay for expenses that your employer should be paying for – here’s how and when to claim a tax deduction.

Employees – claim a tax deduction for expenses

Employees often incur expenses in doing their job – this may be the cost of a train ticket or petrol to visit a supplier, or purchasing stationery or small tools which are used in their job. Employers will frequently reimburse the employee for any expenses that they incur, but where such a reimbursement is not forthcoming, the employee may be able to claim a tax relief.

The test

Employment expenses are deductible only if they are incurred ‘wholly, exclusively and necessarily in the performance of the duties of the employment’. The test is a harsh test to meet; the ‘necessary’ condition means that ‘each and every’ jobholder would be required to incur the expense. Consequently, there is no relief if the expense is not ‘necessary’ and the employee chooses to incur it (even if the ‘wholly and exclusively’ parts of the test are met). The rules for travel expenses are different, but broadly operate to allow relief for ‘business travel’.

In the performance of the job v putting the employee in a position to do the job

A distinction is drawn between expenses that are incurred in actually performing the job and those which are incurred in putting the employee in the position to do the job. Expenses incurred in travelling from the office to a meeting with a supplier and back to the office are incurred in performing the job. By contrast, childcare costs or home to work travel are incurred to put the employee in a position to do the job. Relief is available only for expenses incurred as part of the job, and not for those which incurred, albeit arguably necessarily, to enable the employee to do the job.

Expenses for which relief may be claimed

A deduction can be claimed for any expense that meets the ‘wholly, exclusively and necessarily’ test. Examples include professional fees and subscriptions, travel and subsistence costs, additional costs of working from home, cost of repairing tools or specialist clothing, phone calls, etc.

Where the expense is reimbursed by the employer, a deduction cannot be claimed as well; however, the amount reimbursed is not taxable and is ignored for tax purposes.

Using your own car

Where an employee uses his or her own car for business travel, the employer can pay tax-free mileage payments up to the approved rates. For cars and vans, this is 45p per mile for the first 10,000 miles in the tax year and 25p per mile for any subsequent miles.

If the employer does not pay mileage allowances or pay less than the approved amount, the employee can claim tax relief for the difference between the approved amount and the amount paid by the employer.

Flat rate expenses

Employers in certain industries are able to claim a flat rate deduction for certain expenses in line with rates published by HMRC (see www.gov.uk/guidance/job-expenses-for-uniforms-work-clothing-and-tools#claim-table). Although claiming the flat rate removes the need to keep records of actual costs, employees can claim a deduction based on actual costs where this is more beneficial.

How to claim There are different ways to make a claim depending on your circumstances. Claims can be made online using HMRC’s online service, by post on form P87, by phone or, where a self-assessment return is completed, via the self-assessment return.

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