Mileage payments in Payroll

Mileage payments in Payroll

Employees often need to undertake business journeys, and mileage payments are often made to cover the cost of fuel and, where the car used is the individual’s own rather than a company car, the associated running costs and an element of depreciation. However, all mileage allowance payments are not the same.

It should be noted that business travel does not include home to work travel and vice versa (except in very limited circumstances).

Approved mileage allowance payments

Approved mileage allowance payments are relevant where an employee uses his or her own car for business travel. The system allows the employer to pay an employee a tax-free mileage rate through the payroll, which does not need to be notified to HMRC nor on the employee’s P11D. Approved mileage allowance payments are set for cars and vans at a rate per mile for the first 10,000 business miles with additional business miles at a lesser rate per mile.

If the employer pays a mileage rate in excess of the approved rate, the excess is taxable and must be notified to HMRC through the payroll or on the employee’s P11D. If the amount paid by the employer is less than the approved rate, the employee can claim tax relief for the shortfall.

Advisory fuel rates

HMRC also publishes advisory fuel rates. These can be used by employers to reimburse fuel costs where the employee has a company car. The advisory fuel rates are lower than the approved mileage rates to reflect the fact that it is the employer, rather than the employee, who meets the running costs of the vehicle and suffers the associated depreciation.

As with approved mileage rates, payments in excess of the advisory rates are taxable.

Further Questions

If you have any further questions about calculating your mileage -please get in touch with us using our contact form here or call us on 01242 573 321.

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