Claiming Tax on Business Miles

nealstevo

My company provide me with a company credit card to purchase fuel for both private and business use and I am taxed on both using the following method;

- I spend £100 on fuel for a combination of both business and private use.
- At the end of the month the £100 is added to my gross salary and the tax is deducted.
- The £100 is then also deducted from my salary.
- The net effect is that I am taxed £40 on the fuel.

The result of this means that I am paying 40% of the cost of my business miles. How much of this can I claim back, and how?

In previous jobs I have been paid a set amount per business mile and have simply used a P87 to claim tax relief on the difference between what the company paid me and the IR recommended 40p per mile. In the current job I don't think I can do this as I'm getting paid a set amount per mile.

What am I entitled to - the IR are saying they have never heard of this method before!?!?!

Help appreciated!!

TM1976

This isn't recognised the way of doing this, it's impossible to say whether you loose out or not without seeing the figures.

What is true is you are being taxed on the full amount of the fuel, therefore you can claim the full amount of tax relief on 40p per mile as you meet the entire cost of your petrol expenses for tax purposes. Based on what you say here your are a 40% tax payer and as such should be able to claim tax relief of 16p per mile on each business mile you do.

nealstevo

Is this right, even though the company are effectively contributing 60% of the cost. I guess if it came to it I could divide what they pay by the miles I have done to get a cost per mile. Still confused!

TM1976

From what you say earlier yes. Here is why:

Your employer pays all the petrol, but the amount they pay is added in full to your taxable salary. You are taxed on your contracted salary plus all of the petrol your employer has paid. This amount is deducted from your net salary because you have already received it on your fuel card.

You don't need to work out how much you have received per mile because as you have been taxed on all the petrol money you have received you haven't had the benefit of any tax relief. Therefore for each mile up to 10,000 miles you can get the full tax relief on each 40p like you had not received anything.

Sorry this still sounds complicated, can anyone else back this up? Just to confirm you use your own car as if you get a company car it's different.

Rolo_Tomasi

Have I got this right:

You spend £100 on a company credit card in a month. Your pre tax salary is increased by £100 so, assuming you are a 40% tax payer your net salary would be £60 more than it should be. The company then deduct £100 from your net salary meaning that you actually come out with £40 less than you should.

If this is right then it seems a complicated way of doing it to me. It doesn't appear that you are actually getting any tax relief on your business travel as you are paying the full cost of all expenses via the £100 deduction from your net salary. The fact that you are being paid an additional £100 is irrelevant as this is being taxed in full.

I would say that you could put a claim into the Revenue for all of your business travel at their approved rates (40p/25p).

nealstevo

Yes, thats right. The car is mine and not a company car, and yes my net salary is effectively £40 less than it would be if I didn't do the business miles.

So let me get this right....I'm effectively entitled to claim the tax relief at 40p per mile (NOT the whole 40p?)?. Also, how would I represent this on the P87. Would I say that I don't receive any payment from my company and therefore the difference is 0p per mile and 40p per mile? Sorry for being dim.

trevormax

Your net salary is down by £40 but you are also getting petrol out of this for all of your private use (as well as your business mileage).

If you didn't have this arrangement, would you be spending £40 per month on petrol for private use such as going to and from work or going to the supermarket etc?

nealstevo

I do get my private petrol also, but am also taxed on this in the same way, which I know I cannot claim relief on. The example I quoted was for the business element only.

TM1976

You don't get any tax free mileage payments, therefore you can claim tax relief on the full 40p. However you only get tax relief on the 40p not the 40p itself. As you appear to be a 40% tax payer this should be worth 16p a mile to you in real terms.

trevormax

Well actually he does get money for fuel. He gets £60 per month for fuel.

£100 spent on company credit card for business and private mileage which he doesn't pay back (so £100 of free petrol).
£100 added to his wages for expenses.
Taxed 40% on the £100 added to his wages = £40.
£100 removed from his net wages.

His wages are down by £40 but he has had £100 of free petrol from the company credit card so the net result is he is £60 up. If his business/private fuel usage was split 60/40 then he has received business mileage expenses of £60. £60 would cover 150 business miles at the approved HMRC rate of 40p per mile. Private mileage also includes commuting to and from work each day which is why a 60/40 split is resonable to assume. Business mileage mainly includes traveling to clients or temporary work sites throughout the course of his work day.

To find out if he is entitled to anything back from HMRC, we would first need to know what business and private mileage he does on the £100 of free petrol and how many business miles he does each month.

TM1976

He doesn't need to work out his business/private split because his employer effectively increases his gross by the amount paid on his fuel card, which he is then fully taxed on.

The fact the extra amount is paid onto a fuel card actually makes no difference his employer could just give him another 100 pounds and he'd still be taxed on it.

What he hasn't got is the tax relief on his mileage at AMAP rates so if he works out his business mileage he can claim like he had received nothing. Actually he has received money for it but he hasn't had any of the tax relief he is entitled to because of the unusual way his employer has accounted for it.

What is actually incorrect here is the way his employer has recorded it. Really they should calculate a benefit in kind on the fuel card and add it to his P11d. Not sure what HMR&C's position would be on this however it's possible that he could be paying more tax than he should do by not going down the P11d route.