Tax Free Allowances

jennifernil

Yes, that sounds OK if you were in the 40% band.

You should look on it as a tax saving rather than a payment though, as you may have to wait to get the refund.

The mileage payment allowed tax free is intended to cover all running costs and depreciation. Then you have your car allowance, taxed, as well. So with the 2 together, is that enough to buy and run a car, and leave you better off than before?

Cybernezz

Hey Jennifernil & BoGoF,



Ok I understand. Couple of tweaks to my fuel allowance on my sheet and I think I'm there.


The fuel allowance doesn't seem completely fair to be honest...

I'd would understand it if i was getting relief on VAT already paid on the £4500 paid for from the company (given that fuel is a business purchase and would have incurred VAT - ergo I get the VAT back.
But the HMRC monies dont add up to me at the moment.


I can't see how the HMRC are providing enough to help with depreciation either...

BoGoF

Cybernezz wrote: »

Hey Jennifernil & BoGoF,

I can't see how the HMRC are providing enough to help with depreciation either...

Some might argue it's not HMRC's job to help with depreciation though. In all honesty I was surprised when they increased the first 10,000 miles to 45 pence per mile at the last budget. On that note, don't base your decision solely on what's on the table today as tax relief on mileage allowance must be costing the government a fortune so who knows what will happen in the future.

jennifernil

It really is not up to HMRC, which after all in the end means the rest of the taxpayers in the country, to provide help with the cost of buying and running cars for business use.

You are allowed to be paid, tax free, the 45/25ppm, your problem is that you are not getting that much from your employer. So by allowing you to set the £5000 they are not paying you, against other income, the UK taxpayers are already subsidising your running costs to the tune of the amount of tax you will not pay.

This is not a criticism of you of course, those are the rules. But if you feel the amount you will have is insufficient then the person to take it up with is really your employer. Remember however that they are also paying you the car allowance, so they may feel they are already being quite generous. And of course, you could continue to take the company car.

Then of course you are taxed as it is a benefit, this because you can (presumably) use it privately too. The same with the fuel card, presumably this covers all your private fuel too? Some employers ask staff to repay private fuel, in which case the fuel card is no longer a benefit so no tax to pay on that.

It is really complicated! So not easy to decide what is the best way to handle it.

I would think, if you did low business mileage compared to private, you derive far more actual benefit from having the company car and fuel card. Your situation is probably the complete opposite, so the actual benefit to you is much less.

jennifernil

Cybernezz wrote: »

Hey Jennifernil & BoGoF,



The fuel allowance doesn't seem completely fair to be honest...

I'd would understand it if i was getting relief on VAT already paid on the £4500 paid for from the company (given that fuel is a business purchase and would have incurred VAT - ergo I get the VAT back.

I think you may find that your employer is reclaiming the VAT on purchases on the fuel card?

You cannot reclaim VAT as you are not a VAT registered business.

Your employer would not be able to reclaim VAT if they pay you mileage, but whatever they pay you will be a business expense for them, like your salary, so will come off their income before tax is calculated.

Cybernezz

Hi guys,


On reflection, I didnt mean to suggest I expect the public should pay for the depreciation of my car, BoGoF - when you mentioned that the benefit was to help with fuel and depreciation I struggled to comprehend how it helped with depreciation when it only just covers the true cost of the total business mileage for the year after you factor it by the tax bracket.

Hopefully you don't both feel that I expected all the tax payers to bear the brunt of my personal car depreciation!! As good as that would be mind!...

For a minute there you could have misinterpreted me to be a politician :rotfl:



I've just done some more digging on the HMRC website and found my initial scenario to be true - potentially...

if you check the document on the following link you will see why. I have copied their example below too.

hmrc.gov.uk/incometax/relief-mileage.htm



the example they give you is as follows:

"For example, you use your own car for 850 business miles and your employer pays you 30p per mile. The approved amount is £340 (850 times 40p). The allowance you get from your employer is £255 (850 times 30p). Your Mileage Allowance Relief is £85 (£340 less £255).
You are only entitled to Mileage Allowance Relief if your employer pays you:
no mileage allowance
less than the approved amount
If your employer pays you more than the approved amount, you'll have to pay tax on the extra."



That would backup my first calculations - Company pays £4,500.
government suggests £9500.
I can claim for £5,000 on the proviso I do 30,000 business miles.


They don't mention tax brackets on there :think:

any thoughts?

BoGoF

Yes - claiming mileage allowance relief gives you tax relief at the appropriate rates.

Trust us you are not going to get £5000 from HMRC. Why would an employer pay anything if the employee could get it back from HMRC.

Cybernezz

BoGoF wrote: »

Yes - claiming mileage allowance relief gives you tax relief at the appropriate rates.

Trust us you are not going to get £5000 from HMRC. Why would an employer pay anything if the employee could get it back from HMRC.

Well I can't answer that BoGoF

Have you seen on the link though?
essentially it wouldnt be a company car as I would have opted out, it would be using my private car for business use.
I only remind you of that for clarity.

hmm...

BoGoF

Ok back to basics, say you earn £50,000 and are claiming Mileage Allowance Relief of £5000. All that means is that the £5000 is deducted from your income of £50,000 meaning you are taxed on £45,000 instead of £50,000 so the saving to you in this case is £5000 at 40% = £2000.

I've seen the link and the clue is in the word 'relief' nearly all tax reliefs are given at your marginal rate of tax.

jennifernil

Yep, that is exactly what everyone is telling you. That is how it works. Take it from someone who has been completing their husband's tax return, with mileage payments (he didn't always get the full amount allowed), for 32 years!