As an employer, you have certain tax and National Insurance reporting obligations if you cover the costs of your employee’s use of their private vehicle for business travel.
We have created a handy guide to help explain the ins and outs of business mileage for employees.
Rules for tax
There are currently two separate schemes that are used to deal with these mileage expenses:
- One for tax relief
- One for National Insurance relief
If your employee uses their own vehicle for business journeys, you will pay MAPs – Mileage Allowance Payments.
You are allowed to pay your employee a certain amount of MAPs each year without reporting them to HMRC.
This is called an ‘approved amount’.
This table helps to explain more:
| First 10,000 miles | Above 10,000 miles | |
| Cars and vans | 45 pence | 25 pence |
| motorcycles | 24 pence | 24 pence |
| Bikes | 20 pence | 20 pence |
For example, if your employee travels 12,000 miles business miles in their car, then the approved amount for the year would be £5,000 (10,000 x 45 pence plus 2,000 x 25 pence).
To calculate this, you need to multiply your employee’s business travel miles for the year by the rate per mile for their vehicle.
It is important to remember that even if your employee more than one vehicle in a year, it is all calculated together.
What do I need to report and pay?
For anything above the ‘approved amount’ you must:
- Report on form P11D
- Add anything above the ‘approved amount’ to your employee’s pay, and deduct/pay tax as normal
For anything below the ‘approved amount’, you will not have to report to HMRC or pay tax but:
- Your employee will be able to get tax relief (this is known as Mileage Allowance Relief, or MAR) on the unused balance of the approved amount
- You can make separate optional reports to HMRC of any unused balances under the Mileage Allowance Relief Optional Reporting Scheme (MARORS)
Are there rules for National Insurance?
As an employer, you might have to deduct and pay National Insurance on payments that relate to relevant motoring expenditure (RME).
This includes:
- MAPs
- Payments that would be MAPs, but are paid to a person other than your employee, for their benefit
- Any other cash payments you make to your employee towards the use of their vehicle
If you do not already know, there is an aspect of business travel mileage that is called the ‘qualifying amount’.
This means there is a certain amount of RME that will be exempt from reporting to HMRC or paying National Insurance.
How do you work out the qualifying amount’?
To calculate this, you will need to multiply your employee’s business miles in the earning period by the rate per mile.
| Type of vehicle | Every business mile |
| Cars and vans | 45 pence |
| Motorcycles | 24 pence |
| Bikes | 20 pence |
For example – if your employee drives 1000 miles in their van, and you pay an amount of RME to cover this, then the qualifying amount for the earnings period will be £450 (1,000 x 45 pence).
What to report and pay for RME
If the RME you provide to your employee in the earnings period exceeds the qualifying amount, then you will need to add the excess to their other earnings for that earnings period.
This is done when you are calculating Class 1 National Insurance (but not as PAYE tax) through your payroll.
If the RME is below the qualifying amount, you have:
- Nothing to report
- No NI to pay
You should know that there’s no MAR for NI, and you cannot carry forward the difference between RME and the qualifying amount to a later earnings period.
Reporting your employee’s business travel mileage is important is it will help you to remain compliant with tax legislation and avoid possible penalties.
If you would like to know more about how to report and pay your employee’s business travel mileage, contact us today.
