Sometimes, employees use their personal cars for business reasons. There are potential tax implications for this scenario. Let's go over the business mileage rates when employees use their own vehicles.
What rules for taxes are there on mileage?
If a business makes payments to employees over a certain amount, they have to report it to the HMRC. The business has to deduct and pay tax on that based on business mileage rates.
How much can businesses pay employees for business mileage?
A business can pay employees for the business use of their personal vehicle. This is called a Mileage Allowance Payment. A business can pay up to an approved amount before having to report them to the tax agency.
What's the approved amount before businesses have to report?
To determine the approved amount, you'll need to know the employee's business miles for the year. Then, multiply it by the appropriate business mileage tax rate.
What do businesses have to report regarding mileage payments?
A business must report paid amounts over the approved amount. Add this to the employee's pay and then deduct and pay tax as you normally would.
If your payment is below the approved amount, a business doesn't have to pay tax. The employee will then be eligible for a Mileage Allowance Relief on their taxes.
What records do I need to keep?
You don't need a record of your employee business miles when you file or pay taxes. But, you will need those records for audits, both financial and from the HMRC. That's why it's a good idea to use a mileage-tracking solution like MileIQ to have compliant mileage logs.
