A growing proportion of employees have to bear the brunt of paying for travel and business expenses out of their own pocket, with little or no funding at all from their employer – carers; IT consultants; sales managers; etc… being the most affected professions.
13 Top Tips On Claiming Back Business Mileage From HMRC If You're Employed
HMRC is of course aware of this trend, which is why a basic knowledge of the rules can prove useful so you can get a sizeable tax refund for your business petrol/fuel expenses. Here are 13 top tips to help you reclaim some of the tax you paid if you were employed and using your own vehicle as part of your work duties...
Please note we are not talking about claiming back mileage or fuel expenses from HMRC for self employed individuals; self employed individuals can easily offset legitimate business expenses (including travel and subsistence) against their profit by completing an annual self assessment tax return.
However, rules are a lot stricter for employed workers under PAYE. To be considered by HMRC as legitimate, an employee' s business expenses (including mileage) MUST be:
Tip #1 - ... Related to business-related travel only. You cannot include any travel that is to do with running personal errands or normal commuting from home to your registered place of work. Otherwise, your claim will be rejected by HMRC (and considered as fraud!).
Tip #2 - ... Necessary for you to perform the duties of your occupation. Occasionally, HMRC may request to see the terms of your contract of employment just to ensure that you actually need to use your own vehicle or pay for your own fuel costs in order to perform your normal duties.
Tip #3 - ...Not already reimbursed by your employer. If you do get some reimbursement from your firm, how much do they pay you per mile? The current rate of tax-free mileage allowance is 45 pence per mile for the first 10,000 business miles, and then 25 pence per mile for business miles over 10,000. If your employer does not reimburse your mileage using these rates (he doesn't have to), then you have a very good case for claiming a mileage tax rebate from HMRC. If you do get paid at a rate inferior to 45 pence per mile, you can still claim the tax relief for the difference (we’ll explain this in a moment).
Tip #4 - ...Incurred by yourself and provable in the form of receipts or traceable from bank statements. Although you wouldn’t need to supply these to HMRC, this is just in case they want to check up on your claim at a later date – remember, this can happen several months, or even years, after you actually received your refund.
Tip #5 - ...Related to business travel that occurred in lapsed tax years. Under current guidelines, you can claim tax relief going back 4 tax years – from the date of this article, this means you can claim fuel expenses from 6th April 2010 (any earlier and the claim won’t be valid). However, you cannot include expenses incurred during this current tax year; you must wait until the tax year ends to submit it – from 6th April 2015.
Tip #6 - ...Backed up by a short declaration from your employer (a couple of lines suffice, this isn't an essay). Obtain from your employer a short declaration that he does not reimburse you for business mileage (or not up to 45 pence per mile, in which case you should clearly mention in the declaration how much you get per mile). If you have a good relationship with your superior or your boss (or anyone that has the authority to sign on behalf of your company), take care to explain why you want them to sign such a declaration. That way, they won't feel uneasy about it.
Tip #7 - Be disciplined, use a detailed mileage log
This is so important that it warrants its own paragraph...
The most accurate way to keep track of your business miles is to use a detailed mileage log. Sounds like a bummer, but hey, you really should get into this habit (leave a pen and the log on your dashboard every time you make a business journey, this way, you won't forget!). A mileage log should clearly indicate the starting and destination address of each business journey (including post codes); the exact reason for the travel (i.e. “Business” is too vague; “Visiting client Mr X” is better); the exact mileage figure for the round trip.
Tip #8 - Understand how to calculate mileage tax relief
Simple…ish! Start by splitting your mileage log per tax year (a tax year runs from April 6 to the following April 5) to arrive to the actual figure of business miles travelled per tax year. Once you've done that, just multiply each annual figure with the applicable rate from HMRC. Here's a quick example...
Say, for example, you made 12,000 business miles in 2013-14 and you didn’t get reimbursed from your employer. The expense value is therefore 10,000 miles x 45p + 2,000 miles x 25p = £5,000. However, the tax relief applicable to your claim – or the value of the tax refund that you could expect from HMRC – is 20% of that amount, which is £5,000 x 20% = £1,000 in tax refund. This is of course assuming that you're a 20% taxpayer. However, if you're a 40% rate taxpayer, then the applicable rate for tax relief will reflect that.
Now let’s say that your employer actually did actually reimburse you for mileage, but at a rate inferior to 45p per mile. How do you work out the claimable expense value? First, find out the rate used by your employer (you should easily find this out from a pay slip). Let’s assume your firm pays you at a rate of 15p per mile. Using the previous example, if the value of your expenses is £5,000 (we worked that out earlier), subtract from that figure 12,000 x 15p, which leaves £3,200. If you pay income tax at 20% rate, then the tax relief would be £3,200 x 20% = £640. This is the value of the tax refund that you should expect back from HMRC. Definitely worth it, if you ask me!
A few other important points to bear in mind:
Tip # 9 - When claiming the mileage allowance rate, you cannot add other motoring costs. This is because the 45 pence per mile rate already takes into consideration all motoring expenses, including the cost of fuel; insurance; maintenance & repairs; vehicle depreciation; etc…
Tip #10 - You need to fill in a P87 form for each tax year you to claim tax relief if the expense value of the claim is under £2,500. This form is downloadable from HMRC’s website
Tip #11 - If the value of the expenses is £2,500 or over, you will need to fill in a self assessment tax return (or else your claim will be rejected!).
Tip #12 - The amount of tax you can receive back from HMRC cannot exceed the amount of income tax that you paid in that year. If you paid, say, £4,000 income tax in 2013-14 and the value of the tax relief is £5,000, you’ll only get £4,000 in tax refund! Remember, you’re claiming a tax rebate, which means you’re asking HMRC to reimburse you for your legitimate fuel expenses against the value of the tax that you actually paid during the same tax year.
Tip #13 - If for some reason you actually owe money to HMRC prior to you making a claim, then HMRC will use the refund value against your debt (i.e. You underpaid tax in previous years; You are in arrears with tax payments from previous years; etc...). If this is your case and the value of the tax rebate is enough to cover your debt, they will repay you the difference. Otherwise, they will simply use it to reduce your debt. Claiming an expenses tax rebate is a particularly useful and clever way to pay back or significantly reduce any outstanding debt you may have with the Taxman!
Claiming tax relief for fuel expenses can be quite a complex subject; not everyone knows how to fill in tax returns or P87 forms properly. This is why many employees prefer to use the services of a reputable tax agent. Tax agents are familiar with all the necessary forms and processes, as well as being a good source of advice.
If you need specialist help with claiming mileage expenses, contact one of our consultants on 0203 137 5773 for a free confidential assessment.