Is Mileage Allowance Taxable?
This blog post aims to help readers in answering the question of whether or not the mileage allowance on their vehicle is taxable. For this, we will explore the qualifying criteria for marriage allowance, its approved limits and calculations; as well as discuss situations in which you can apply for a Mileage Allowance Relief.
Is Mileage Allowance Taxable?
Yes, Mileage Allowance is considered taxable income in the United Kingdom when it exceeds the approved limit. However, it remains untaxed when it is under the approved limit.
Below are some examples that can help you in learning whether or not your mileage allowance will be taxed or not:
- If you are paid the approved amount when you are reimbursed by your employer, the entire sum goes directly to you
- If you are paid less than the approved amount, you will be able to claim Mileage Allowance Relief (MAR) for the remaining amount of mileage allowance you are entitled to
- If you are paid more than the approved amount, this extra reimbursement will be considered a personal benefit and will be taxed as income through PAYE.
This means that the allowance will be included in your taxable income for the year and you will be required to pay taxes on it. However, there are some exceptions to this rule. For example, if you use your vehicle for business travel, you may be able to deduct the cost of fuel and other expenses from your taxes.
Mileage allowance is a type of reimbursement that is given to employees in the United Kingdom for business-related travel expenses. The allowance is calculated based on the number of miles travelled and is meant to cover the cost of fuel, wear and tear on the vehicle, and other related expenses.
If you receive a mileage allowance, it is important to keep track of your expenses and keep receipts to claim any deductions or exemptions that you may be eligible for
Generally speaking, a mileage allowance is a tax-free payment from your employer to cover the cost of running a car for business purposes. The allowance is calculated based on the number of miles you drive and the rate set by the government.
If you receive a mileage allowance, you do not have to pay tax on the payments you receive as long as it is within the approved limit. Despite this, you may still have to pay national insurance contributions on the allowance.
Mileage allowance payments cover the following:
- vehicle expenses such as fuel
- vehicle maintenance and upkeep
- vehicle depreciation
- insurance and road tax payments
However, it will not cover tolls, parking fees, congestion charges or fines for road offences.
If you are self-employed, you will have to apply for your mileage allowance when you file your annual tax returns. You should be able to provide relevant receipts and mileage logs to claim the amount.
What Is The Taxable Amount Of Mileage Allowance?
The taxable amount of mileage allowance is anything more than the approved amount. This means that the additional amount that remains after deducting the approved amount of mileage allowance is to be reported by an employer to the HMRC and subject to tax.
To calculate this approved amount you can multiply the number of miles that your employee has incurred for business travel in a given year by the rate per mile for their vehicle. For help with calculations, you can use the HMRC’s MAP sheet.
Tax rates per business mile can be calculated as follows:
|Rates per business mile||First 10,000 miles||After 10,000 miles|
|Cars and vans||45p||25p|
Anything above the approved amount must be reported by an employer on a P11 form as well as added to an employee’s pay and taxed.
In case an employee’s usage of mileage allowance is below the approved amount, they can apply for tax relief on the balance amount.
How Can You Claim Mileage Allowance Relief?
If you plan to claim Mileage Allowance Relief from your employer, you must maintain a record of your qualifying business mileage expenses.
You can claim MAR depending on how your employer reimburses you. For instance,
- You can claim the full amount against tax if your employer does not reimburse you for business mileage.
- You do not have to claim against your tax bill and do not have to pay any tax on the reimbursement you received if your employer reimburses you at the same mileage rates.
- You can claim relief for the difference between your employer’s reimbursement and HMRC’s allowance if your employer reimburses you at a lower rate than the HMRC AMAP.
- You will have to pay tax on the amount in excess if your employer reimburses you at a higher rate than the HMRC AMAP.
Additionally, in the case of the following types of business-related journeys, you can automatically apply for a Mileage Allowance Relief:
- If you need to travel to a place to perform a work-related task. For instance, if you are a plumber who needs to travel to a building site.
- If you need to meet a client for a business meeting. This can be at your client’s workplace or a third-party venue.
- If you need to commute from your permanent place of work to other sites within your company. For instance, if you are based in one city or town and need to travel to another office of your company in another city or town.
- If you need to go to a temporary workplace for your work and you work for less than 40% of your working week at this place. Alternatively, you could expect to work at this temporary workplace for less than two years.
The above discussion has highlighted that there is an approved limit for mileage allowance for employees. This means that the entire amount of marriage allowance cannot be subject to taxes; however, any amount that goes beyond the approved amount is subject to tax. However, there are certain sections in which you can apply for Mileage Allowance Relief.