Employers can reimburse employees to 45p per mile tax-free for business mileage, while self-employed traders using ‘simplified expenses’ can claim the 45p per mile for business mileage as a deduction from taxable profit.
The 45p rate covers the first 10,000 miles per tax year, reducing to 25p per mile thereafter. Motorcycles and bikes are at the reduced rates of 24p and 20p per mile respectively, regardless of the total number of miles.
Employers can reimburse less than the above rates (in which case, the employee can get tax relief on the unused balance of the approved amount, by making a claim to HMRC), but if an employer chooses to reimburse more, the excess is subject to income tax and Class 1 National Insurance via payroll, and must also be declared on the annual form P11D.
The rates provided by HMRC are intended to cover all costs associated with the vehicle –fuel, insurance, repairs, etc.
It might follow that an employee or sole trader or partnership using an electric vehicle for business mileage should not be entitled to the full 45p tax-free, however, that is not the case, currently at least. Mileage Allowance Payments are at exactly the same rate for petrol, diesel, electric, and hybrid vehicles. The rate is also the same whether the vehicle is a car or a van.
The situation is different for employees who are provided with a company car by their employer. If the employee pays for the fuel in the vehicle, which he or she then uses for business mileage, and wishes to claim mileage costs from the employer, the ‘Advisory Fuel Rates’ are used instead. These rates are based on the engine size and the type of fuel - for petrol cars, the rate varies between 12-21p per mile depending on engine size; and for diesel, it’s 10-14p per mile.
Mileage in electric cars, which the employee charges his or herself, can be reimbursed at 4p per mile, tax-free. Hybrid cars should be treated as either petrol or diesel cars in order to work out the appropriate rate.
The rates can be viewed in full on HMRC’s website.
An employer can reimburse up to 5p per passenger per business mile, if an employee is required to carry fellow employees on a work journey, in their own vehicle. If the employee receives less than 5p per mile, he or she cannot claim tax relief from HMRC on the unused balance.