|Current Rates||First 10,000 business miles in the tax year||Each business mile over 10,000 in the tax year|
|Cars and vans||45p||25p|
Reimbursement of Travel Expenses: Using a Private Car for Business Purposes
Travelling is an inevitable aspect of many businesses. Whether it’s meeting a client, attending a conference, or visiting a project site, mobility is essential. Often, employees use their private vehicles for such purposes. Directors of ltd companies or if you have a self employment you may use a private vehicle rather than a commercial one. In such cases, understanding how the reimbursement of travel expenses works is crucial for both the employer and the employee.
1.The Basics of Reimbursement:
When you use your private cars for business-related travels or your staff, you will incur costs such as fuel, wear and tear, and even depreciation of the vehicle. It’s only fair that businesses compensate you. This compensation is what we call reimbursement.
One of the common methods of calculating reimbursements is by using a mileage rate. This rate is set per mile and is intended to cover all the costs associated with operating the vehicle, including fuel, maintenance, insurance, and depreciation. Have a look in the table what current rates apply.
If you made a total of 14,000 miles in one tax year and it is established that 4,000 was for private purposes and 10,000 was purely business related then 10,000 x 45p = £4,500 this will be an expense of your business for traveling purposes.
3. Actual Expense Method:
Another approach to determine reimbursement is the actual expense method. Here, you can maintains a detailed log of all vehicle-related expenses incurred while using the car for business purposes. This includes receipts for gas, maintenance, repairs, and even insurance. At the end of a set period, mainly end of the tax year, those will be added together and a business proportion will be used as a travelling expense for you business for tax purposes.
While this method is more accurate, it’s also more cumbersome due to the detailed record-keeping required. It is used by Self Employed owners especially when a new vehicle is purchased.
4. The Importance of Keeping Records:
Regardless of the method used, maintaining a clear record is vital. This includes details of each trip – the date, purpose, starting point, destination, and miles travelled. Such records not only facilitate accurate reimbursement but are also essential for tax purposes. You can do a manual table or us an app for tracking your miles.
5. Tax Implications:
Reimbursements can have tax implications. In many regions, if the employer reimburses the employee at a rate higher than the standard mileage rate, the excess might be considered taxable income. Conversely, if the employer reimburses less than the standard rate, the employee might be eligible for tax deductions. It is vital to remember that whichever method you chose you need to stick with it till your car is replaced. Then you can choose a different method.
6. Limitations and Restrictions:
It’s also worth noting that most reimbursement policies specify that commuting between one’s home and regular workplace is not considered a business travel expense. Only additional travels, such as to client locations, would qualify.
7. Benefits of Clear Policies:
A well-defined vehicle reimbursement policy is beneficial for all. It ensures fairness, clarity, and reduces the possibility of conflicts. If it involves Employees, then they are assured they will be compensated adequately, and employers can budget for these expenses accurately.
What about other travel-related costs?
Parking fees, tolls, and congestion charges directly related to a business journey can also typically be claimed back. However, any fines or penalties (like speeding tickets) remain the responsibility of the driver and when incurred by a business owner not tax deductible
The Distinction between Business and Personal Travel
It’s crucial to differentiate between business and personal travel. For instance, commuting to and from work is generally not considered a business journey and therefore not claimable. Only trips that are made specifically for business tasks (meeting clients, traveling between different work locations) qualify.
What if I Use Multiple Vehicles?
If an employee uses more than one vehicle for business travel, it’s essential to maintain separate records for each.
Always consider consulting with a professional accountant or tax advisor to gain clarity and adhere to the current rates and regulations that may apply just to take advantage of the tax relief. Here at Greenlight Accountancy we are always happy to help.