If you use your car, van, motorcycle or bicycle for business purposes, you need to track your miles. The HMRC allows you to write off business drives but only if you track your miles.Let's dive into how the HMRC business mileage can save you at tax time.
How to get tax relief with HMRC business mileage
Tracking your business miles can put money back in your pocket in the form of tax relief. It can often be quite a lot, depending on how much you drive for work. Remember, every business mile can result in tax relief. So, the more you drive for work, the more you can save at tax time.
The HMRC allows you to claim 45 pence for every business mile you drive in tax relief. This is limited to your first 10,000 miles. But, you can still count miles over that limit for tax savings.
Tax rates per business mile
Tracking your business mileage can put money back in your pocket at tax time. Often, this can be quite a lot. If you use simplified expenses to calculate this, you can claim 45 pence worth of tax relief for every business miles you drive during the tax year, up to 10,000 miles. For example, you can get £4,500 worth of tax relief if you drive 10,000 miles for business during the year.How much that saves you will depend on your income. If your taxable income falls within £12,501 to £50,000, your basic rate will be 20 per cent. Add that to the 9 per cent National Insurance contribution to find the value of your tax relief:For the example above, your savings will be £1,305.[(20 per cent x £4,500) + (9 per cent x £4,500) = £1,305
Even if you drive fewer miles per year for business, your business trips can still add up. For example, even if you only drove 50 miles per week, you could claim £1,170 in tax relief (2600 miles x 45p = £1,170).
How to track HMRC business mileage
Of course, the HMRC isn't just going to take your word for it. You need to accurately track all your business miles if you want tax relief. Make no mistake, the HMRC will make enquiries to ensure you're complying with its rules. That means guesses or estimates aren't accepted.
If you lack the proper documentation, the HMRC may not allow your tax relief claim after the fact. Even worse, it could also impose interest on the disallowed deduction and a financial penalty on top. The HMRC can impose a penalty of up to £3,000 for failing to maintain and keep records. If you're found to deliberately underpay your tax bill, the HMRC may impose a penalty equal to 70 per cent of the extra tax.
And you can be sure the HMRC scrutinizes this. In general, the more business miles you claim, the better your chances the HMRC will ask you for proof. The ratepayer often loses when investigated by HRMC because they lack adequate records. That's why it's so important to have an accurate mileage log.
What counts as a business drive?
While you're tracking your miles, it's important to know what the HMRC considers a "business drive" and what are considered personal trips. Remember, only the business drives can lead to tax relief.If you're self-employed, your business drives are the trips you take for work purposes. This could include driving from your office to a client's office, travelling between your multiple offices, journeys to pick up supplies for your work and more.Your commute is not a business drive. That means your drive from your home to your office can't be counted toward your tax relief for mileage. Yet, you can claim the drive from your house directly to a client (unless the trip is essentially the same as your normal commute).
Mileage allowance relief
The Mileage Allowance Relief provides tax relief for employees who use their personal car, van, motorcycle or bicycle for business purposes. The rate is the same as the chart listed above. To calculate how much tax relief you can claim, add up your business mileage for the tax year and multiply it by the applicable rate.
There are a few nuances with this, though. If you have more than one job with two or more employers who aren't connected, the 10,000-mile limit can apply to each job separately. If your employer pays you a mileage allowance but it's less than the approved amount, you can claim a Mileage Allowance Relief on the difference.Your payments are tax-free if your employer pays you the approved amount. If you get paid more than the approved amount, you'll have to pay tax on the difference.
