Company car mileage allowance is a benefit given to employees by the employers in the UK to help them support financially while they on business trips. All employers in the UK have some kinds of taxes, National Insurance and reporting compulsion if they provide fuel or travelling benefits to employees using their own vehicle for business trips.
There are 2 separate schemes are used to deal with these mileage expenses - one for tax and one for National Insurance. Here we will discuss about the
In the UK, if employers have to make payments to employees that are more than a particular amount then it has to be reported to HM Revenue and Customs (HMRC) and get the excess deducted and pay tax on the remaining.
What is Mileage Allowance Payments
When employers pay their employees for using their personal vehicles for business purposes or business trips, it is called Mileage Allowance Payments (MAPs). In the UK, employers are allowed to pay a particular amount of Mileage Allowance every financial year without need for reporting them to HMRC, known as ‘approved amount’.
Calculate the ‘Approved Amount’
Best is to use HMRC’s Mileage Allowance Payments worksheet to find out the exact amount. For better understand we are helping you know how it is calculated. Employee’s business travel miles have to be multiplied by the rate per mile for their vehicle to find out the ‘approved amount’.
A statutory system of Approved Mileage Allowance Payments (AMAPs) applies for employees who use their own vehicles for business or official trips.
Below Table is for your reference showing tax rates per business mile
|Type of vehicle||First 10,000 miles||Above 10,000 miles|
|Cars and vans||45p (40p before 2011 to 2012)||25p|
Let’s say, company’s employees travels 12,000 business miles in their car - the approved amount for each employee for the financial year would be £5,000 (10,000 x 45p plus 2,000 x 25p). Irrespective of which vehicle your employees use the calculation is done together.Report and pay Above ‘approved amount’
Any amount that is above the ‘approved amount’ should be reported to the concerned authority.
- Reported on form P11D
- Be adding anything that is above the ‘approved amount’ to the employee’s pay, and deduct and pay tax on the remaining as usual.
Below ‘approved amount’
Any amount that is below the ‘approved amount’ need not be reported to concerned authority. Employers will not have to report to HMRC or pay tax, but:
- employees will be getting the tax relief (called MAR or Mileage Allowance Relief) on the balance of the approved amount that is unused.
- employers can also make separate reports to HMRC (which would be optional) of any such balance that is left unused under the Mileage Allowance Relief Scheme or Optional Reporting Scheme (MARORS). If you want to join the scheme then contact HMRC.
What is Mileage Allowances?
In the UK, getting reimbursed at a reasonable mileage rate is very much normal for employees who used their own vehicle for business travel purposes.
Following you can find the position of the income tax and national insurance contributions (NICs):
Payments by the employers are not needed to be reported on a P11D except for when the employee is reimbursed at a rate that is higher than the Approved Mileage Allowance Payments (AMAP). It is very much possible that employee will claim for income tax relief for the shortfall, if the employer pays less that the normal rates.
When business trip payments are made for the carriage of fellow employees who are also on the same business trip then rates of up to 5p per mile, per passenger, are relived of NICs and taxes. This also covers those volunteers who take their vehicles for hospital car services etc, even if they are not from the same organisation or even employees.
You should also be aware of the company car tax banding. It will help you understand the set of rules about what company tax banding it will fall in, if you happen to choose your next company car. This will also determine what level of company car tax you will have to pay. Often called as BIK in short, it is known as benefit-in-kind. The car tax table can help you determine your taxes.
Even the pure electric propulsion cars with zero emissions are not exempted from the table. CO2 emission is on the left hand side of the columns in the company car tax table enclosed below. The tables start at 0g/km CO2 emissions as it shows in 2017-18 it is 9%.
Then you read across to check the benefit in kind percentage of tax that will be applied to the P11D value of the company car that your choose for each financial year.
You will need following to use the company car tax table:
- The CO2 emissions of the company car that you choose for the financial year.
- The P11D value of the selected company car. It is the list price of the car that also includes the price of any alternative that is added by you, along with the accessories that costs above £100 but your vehicle excise duty and first registration fee will be excluded.
- The fuel type on which your company car runs. The cars that run only and only on diesel are liable to a 3% car tax surcharge in 2017-18, which is further increased to 4% from April 2018 by Chancellor Philip Hammond in the 2017 Autumn Budget. This increased surcharge will be applied unless they meet emission standard Real Driving Emissions Step 2 (RDE2). To check the CO2 emission RDE2 will be of superior standard than Euro 6.
- Diesels vehicles that will meet CO2 emission standard RDE2 are relieved from the diesel surcharge.
- But even though RDE1 was introduced in September 2017, Driving Emissions, stage 2, will not be due until 2020 as a minimum period. So it means even if the cars meet the standard it will be not known as certification for stage 2 is not possible until 2020. However, until that time all new diesel vehicles and every new diesel vehicle drive will have to pay extra tax.
- The surcharge applied on diesel vehicles does not apply to diesel hybrids vehicles and their drivers.
Company Cars Advisory Fuel Rates
The Advisory Fuel Rates (AFR) from 1st September 2018 are below:
|1400cc or less||12p||10p||7p|
|1401cc to 2000cc||15p||12p||9p|
*Hybrid cars are evaluated under petrol or diesel in such conditions.
The Advisory Fuel Rates (AFR) of company car mileage are used as a parameter for to calculate the reimbursement amounts.
The Advisory Fuel Rates (AFR) are guidelines that are determined by the Government. However, the company car mileage rates are adopted by the companies depending on their own business conditions. Although, usually, the companies follow the guidelines set by the Government to make sure the cost beared by the employees for fuel are covered and reimbursements made on the basis of that are reasonable. The rates set by HMRC are based on the existing fuel costs (fuel and oil prices). It also changes depending on global fuel pricing. Additionally factors like applied MPG (miles per gallon) which can cover dissimilar road condition, factors that are based on the change of the season and the efficiency of the vehicles. These factors are becoming a more relevant due to advancement in vehicle and related technology. The Advisory Fuel Rates are amended on a quarterly basis that is in the months of March, June, September and December, that too depends on the factors mentioned above.
Company car mileage rate policy
Multiple options are available, when a mileage claim policy for company cars is implementing.
- First is, employees can pay for the fuel cost and afterwards claim back reimbursements at an agreed upon company car mileage rate
- The other option is company pays some amount for the expected fuel cost (most probably via a fuel card) later employees can claim back for reimbursement on total personal mileage.
- For those who do extensive personal and business trips can pay extra national insurance and income tax and so that they can use the company car for both personal and business trip purposes, which happens to be beneficial.
Evaluate your company car tax
- Your company car tax band percentage rate has to be multiplied by your car’s P11D value to get your benefit in kind (BIK).
- The figure that you get has to be now multiplied by your marginal rate of tax: 20% or 40%.
- If your company car’s CO2 emissions falls between CO2 bandings, then all you have to do is simply round the figure down to calculate the company car tax band that will apply.
- To look at one example, should CO2 emissions of a diesel company car are 98g/km then it would be liable to a car tax banding of 21% in the 2017/18 tax year.
Below you can find the company car tax tables:
Company car tax tables
|Vehicle CO2 g/km||2017-18 % BIK Rate||2018-19 % BIK Rate||2019-20 % BIK Rate|
|Petrol||Diesel||Petrol & diesel||Diesel non RDE2||Petrol & diesel||Diesel non RDE2|
|220 or above||37||37||37||37||37||37|
Below you can find the changes in company car tax that you should be aware about
- Pure electric, zero emission cars that were exempted from tax for several years will now be liable to 9% benefit-in-kind (BIK) tax, which will further rise to 16% in 2019/20.
- Ultra low emission cars have two bands: 0-50g/km (9%, diesels 12%) and 51-75g/km (13%, diesels 16%). These will further rise to 16% for 0-50g/km and 19% for 51-75g/km cars by 2019/20.
- 3% diesel surcharges that are applied to vehicles and cars that run purely on diesel are not applied to diesel hybrid vehicles.
- 2017/18 onwards the 0-50g/km and 51-75g/km CO2 bands are separated by a 4% differential points and the 51-75g/km and 76-94g/km CO2 bands, reducing to a 3% differential point in 2018/19 and 2019/20.
Company car tax bands 2020/21
- You can educate yourself further for new 2020/21 table favouring ultra low emission vehicles (ULEVs). Information available at various places.
Your company car doesn’t have a CO2 figure
Check the following company car tax table, which is based on engine size:
- 0-1400cc: 15% (petrol, gas and conversions); 18% diesel
- 1401-2000cc: 25% (petrol, gas and conversions); 28% diesel
- Over 2000cc: 35% (petrol, gas and conversions); 35% diesel