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Mileage claims in the spotlight

Drivers can expect to have their business mileage claims scrutinised more closely than ever in the coming months as part of a clampdown by tax inspectors.

Revenue & Customs officials feel they are missing out on income because many companies are not processing claims correctly. Our Senior Tax Planner, Tony Elliott said: “Inspectors have begun scrutinising mileage payments more closely than ever, because there is a feeling that payments are being made free of tax and National Insurance, when they shouldn’t be.

“A company can pay any rate of mileage that it likes, but it can only be given to the car owner free of tax or National Insurance if it falls within HMRC’s agreed limits.

“In broad terms, this limit is 45p per mile for drivers covering up to 10,000 business miles a year, and 25p per mile for those who exceed that figure.

“Any mileage allowances which are over and above these rates have to be processed differently for tax and National Insurance purposes – and this is where the problems often begin.

“For tax purposes, the excess mileage allowance has to be filed on a form called P11D. But from a National Insurance point of view, it also has to be added to the employee’s salary for the month, so that employees’ NI is paid. It is this second area which often catches employers out, and which makes an easy target for tax inspectors.”

Tony said correcting procedures for excess mileage claims was relatively simple – but deciding when a company should be paying tax-free mileage allowances in the first place could sometimes prove more complex.

“Employees or directors are only allowed to claim where the journey in question is for purely business purposes. Journeys between a worker’s home and their normal place of work cannot count as business travel.

“By far the most common cause of trouble with HM Revenue & Customs is the lack of a proper mileage log. A company should only be paying a mileage allowance if the driver in question has filled in an official claim form giving details of their journey, including the start and finish point, and the reason the journey has been made.”

Tony said any employees who were reimbursed for business mileage at less than the approved rates could claim tax relief back on the difference directly from HMRC.

“If you follow these general rules, you should have nothing to worry about if the tax inspectors decide to take a closer look at your records.”

Senior Tax Planner, Tony Elliott