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How much annual mileage can I claim?

Most people that have a company car use it for both business and personal use, but of course tax is only deductible for business use. There are two ways to calculate the costs of annual mileage for the car. Both directors and employees can claim under these two schemes.

Total expense method

The first way starts by calculating the percentage of miles driven for business. Add up the total cost of running the car, including fuel, servicing, insurance and road tax. Divide this total by the business use percentage to arrive at a figure to claim for.

You will need a record that keeps track of the mileage use for business and personal use. Entries should be made each time the car is used.

Mileage allowance

The second way is more common for small businesses and self-employed people. A fixed rate per mile is used to calculate the business use. This is currently 45p per business mile for the first 10,000 miles and 25p per mile for any miles above 10,000.

You need to keep a record of car use that splits the mileage between personal and business use.

Whichever method you use, you should stick to it for the life of the car. If you are not sure which system works better for you and your business, talk to your accountant for advice.

VAT

If your business is registered for VAT, it needs to separate car expenses into three categories – mileage payments, car expenses with VAT, and those without VAT.

Employees using own cars

If you have employees that use their own car for business purposes, you need to pay them a mileage allowance. The HMRC approved rate is the same as using a company car, 45p per mile for the first 10,000 miles and 25p thereafter. If you pay above this rate, the extra payments must be recorded on a form P11D. The proportion of the payment above the approved rate will be taxable as part of your employee’s income.

When calculating the annual mileage of an employee, it doesn’t matter if they have used more than one car – it is calculated together. The business can claim tax relief on the mileage payments.

Many insurance companies base their car insurance premiums on the annual mileage. If an employee uses their car for a lot of business miles, this could mean that they exceed the annual mileage their insurance policy is based on and this could increase the cost of their insurance. If their car is insured for only personal use, they may need to pay extra to add business use to their policy. The mileage allowance is regarded as covering any extra insurance costs.

It can get complicated

You can also claim for the cost of purchasing vehicles as a capital expense.

It can get complicated to claim motor-related tax allowances. It is simpler to let your accountant do it for you. They will make sure that you claim all the car-related annual mileage allowances to which you are entitled.

Posted by Mark
August 9, 2018
Accounts

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