Is there a threshold to mileage allowance for tax?

[Ari]

My partner says that she gets taxed on her mileage allowance once past a certain threshold, and since I'm now self employed and doing a fair few business miles (for which I get 40p/mile from the company that I do the work for) I should check the tax implications of this.

My understanding is that any and all mileage allowance (up to 45p/mile I believe) is simply repaying an expense, so does not incur tax, however many miles.

Any thoughts?

[uuf361]

Normally 45p to 10K and 25p thereafter....

[Eric Mc]

An EMPLOYEE is allowed to receive from their employer up to 45p per mile for the first 10,000 business related miles and 25p per mile for business mileage above 10,000 without being taxed on any of this income.

The situation for someone who is self employed is a bit different.

Any money you receive from your customers is deemed to be your sales. It doesn't matter whether you consider that income to be a bill for your time, a bill to recover costs on materials or a bill to recover travel costs. It is all "Sales". Therefore, you can chose any way you like to recover travel costs. If you want to do it be charging your customer mileage, you can. And, you can charge them any rate you like. The rate you chose is purely down to what you think you can honestly charge your customer - and what you think they will be willing to pay. If you decide your mileage rate for a particular customer is 10p per mile or £1.00 per mile is totally down to you and the customer. HMRC are not bothered - as long as you include the amount you have billed for mileage as part of your normal sales income.

The next matter is how YOU claim motoring and travel costs as a cost in your own business accounts. You are, of course, allowed offset any motoring costs incurred in the course of your business against business profits.

Method 1 is to apportion actual business motoring costs (fuel, repairs, MOT, insurance, road tax, capital allowances etc) against the business profits.

Method 2 is to multiply your business mileage by 45p (up to 10,000 business miles) and 25p thereafter and offset the amount calculated against the business profits.

Many smaller businesses chose Method 2 because it involves less meticulous record keeping and is simple to work out.

[Ari]

That's really helpful, thank you.

I charge 40p/mile, so in fact I could/should be claiming the extra 5p per mile off my tax too then.

Meanwhile, sounds like my girlfriend is getting beyond 10,000 miles of business use, and therefore (assuming she gets 40p/mile, think she does), the extra over and above is affecting her tax code to take account of the extra she's getting and not allowed to claim (ie 15p a mile more than she's allowed tax free).

[Eric Mc]

Ari said:

That's really helpful, thank you.

I charge 40p/mile, so in fact I could/should be claiming the extra 5p per mile off my tax too then.

Meanwhile, sounds like my girlfriend is getting beyond 10,000 miles of business use, and therefore (assuming she gets 40p/mile, think she does), the extra over and above is affecting her tax code to take account of the extra she's getting and not allowed to claim (ie 15p a mile more than she's allowed tax free).

Charge your customers 40p per mile - or more if you think they can bear it. HMRC are not interested in what you charge your customer. Just make sure you include the total you have charged your customers as part of your normal sales income.

When allocating motoring costs to your business profit and loss account, use the 45p/25p per mile rates as appropriate.

[Ari]

That makes sense Eric, thank you.

[Terminator X]

Eric Mc said:

The next matter is how YOU claim motoring and travel costs as a cost in your own business accounts. You are, of course, allowed offset any motoring costs incurred in the course of your business against business profits.

Method 1 is to apportion actual business motoring costs (fuel, repairs, MOT, insurance, road tax, capital allowances etc) against the business profits.

Method 2 is to multiply your business mileage by 45p (up to 10,000 business miles) and 25p thereafter and offset the amount calculated against the business profits.

Many smaller businesses chose Method 2 because it involves less meticulous record keeping and is simple to work out.

Thread hijack - can I just pick your brains on this. I've just gone out on my own after 20yrs of PAYE. My accountant has advised to use Method 2 above ie I pay personally for everything to do with the car(s) and only claim the mileage allowance when I'm out and about. It seems to me though that unless I do some mega mileage (I won't), it will be far better to use Method 1 as the bills incurred will be a lot higher ie this will reduce the amount that I need to pay tax on way more than claiming 45p a mile for a few thousand miles?

If I were to buy a new car using the business would that fall under Method 1 too?

TX.

[mrmr96]

Terminator X said:

Eric Mc said:

The next matter is how YOU claim motoring and travel costs as a cost in your own business accounts. You are, of course, allowed offset any motoring costs incurred in the course of your business against business profits.

Method 1 is to apportion actual business motoring costs (fuel, repairs, MOT, insurance, road tax, capital allowances etc) against the business profits.

Method 2 is to multiply your business mileage by 45p (up to 10,000 business miles) and 25p thereafter and offset the amount calculated against the business profits.

Many smaller businesses chose Method 2 because it involves less meticulous record keeping and is simple to work out.

Thread hijack - can I just pick your brains on this. I've just gone out on my own after 20yrs of PAYE. My accountant has advised to use Method 2 above ie I pay personally for everything to do with the car(s) and only claim the mileage allowance when I'm out and about. It seems to me though that unless I do some mega mileage (I won't), it will be far better to use Method 1 as the bills incurred will be a lot higher ie this will reduce the amount that I need to pay tax on way more than claiming 45p a mile for a few thousand miles?

If I were to buy a new car using the business would that fall under Method 1 too?

TX.

If the car is used for personal use as well a business use then you can only charge the business portion for tax purposes. So if you've got a company van which is only used for company business, then you can have 100% under method 1. But if you've got a private car which you use occasionally for business then you'll only be able to claim that small percentage of the costs using method 1. So unless your car is super expensive to run it's normally beneficial to use the mileage allowances (method 2) in such cases.

[Mojocvh]

Ari said:

That makes sense Eric, thank you.

You won't be saying that when the invoice arrives.



ONLY JOKING GUYS.

Eric has, over the years, been very helpful to PH'ers all advice given free and gratis, a real Gent in fact!