Claiming mileage from a business when not an employee or owner

wearethedogs

A friend wants to start up a business to make a small income while he is studying. The business will simply be buying a product, customizing it and then selling it on eBay and at events. The business will be more of a hobby than anything but he believes that he can make money from doing it.

As he is studying he is not employed. His income from the business will not exceed the personal tax free allowance.

He does not currently own a car. If I am to help him out by driving him to suppliers and to the events am I able to claim a mileage allowance? I will not be an employee, and since he will probably be a sole trader, I will not be an owner either.

If I can claim anything, how do I do this? Do I simply get him to give me the HMRC rate (and then he counts it as an expense), or could I claim it directly from HMRC?

I am employed by a company and pay 20% income tax through PAYE.

Any advice appreciated.
Thanks.

LurkerTurnedPoster

If he is buying, customising and selling with the intention of making a profit, it is not a hobby, he is trading. HMRC are not fluffy about that.

If you drive him around, you are providing him with a service and would probably be wise to provide him with an invoice/invoices. You would be obliged to declare that income. Whether you charge him costs alone, or costs plus a service charge is worth thinking about.

You cannot claim expenses on his tax return.

All that aside, it is great that the two of you are working out how to generate income together. Here is to joint success, at least at a level that gets him his own car at some point.

rs65

LurkerTurnedPoster wrote: »

If you drive him around, you are providing him with a service and would probably be wise to provide him with an invoice/invoices. You would be obliged to declare that income. Whether you charge him costs alone, or costs plus a service charge is worth thinking about.

You'll need to check your car insurance. This could be classed as 'for reward'.

antrobus

wearethedogs wrote: »

....
If I can claim anything, how do I do this? Do I simply get him to give me the HMRC rate (and then he counts it as an expense), ..

Yes, that's the way you do it.

So long as your friend is paying you no more than the HMRC rate, then you have nothing to declare, no tax to pay.

Motor insurance might or might not be an issue, though.

wearethedogs

Thanks antrobus, do you have a link to a source which suggests this is the case?

jennifernil

Take a look at the fine print in your insurance, this will tell you what is covered.

"Business use" usually says something like "on your own or your employer's business" so would not seem to cover the scenario you describe as he would not be your employer.

As insurers will do their best to avoid paying a claim, you should check directly with your insurer and get a reply in writing.

Take a look on the HMRC website for the tax situation.

wearethedogs

Telling me to look on the HMRC website is very unhelpful as this is a specific scenario which isn't explicitly covered. My question is about tax and not insurance.

antrobus

wearethedogs wrote: »

Thanks antrobus, do you have a link to a source which suggests this is the case?

It's just really basic tax law.

If you're 'earning' 45p per mile by providing a 'taxi' service to your friend then, it could be argued that the 45p was the taxable income of your taxi business. However since you are using your own car to provide this service, you can personally claim 45p per mile as a tax allowable expense against that income. 45p less 45p is 0p. So no taxable profit and thus HMRC would not be in the slightest bit interested.

jennifernil

The fact that you are not his employee suggests to me that you do not come under the "using your car for work" scheme outlined by HMRC.

So you would need to invoice him, this would be a business expense for him, then you would need to declare the income and reclaim YOUR expenses.

In effect you become a self employed driver.

This is why you need to be concerned with insurance as well as tax.

Your request for a link did not make it clear whether you were referring to the comments on taxation or on insurance.

antrobus

jennifernil wrote: »

....So you would need to invoice him, this would be a business expense for him, then you would need to declare the income and reclaim YOUR expenses.....

And since the expenses reclaimable would be exactly equal to the income received, there would be no profit, and thus no tax to pay. Failure to notify HMRC of this state of affairs would not result in any detriment to the OP.

00ec25

antrobus wrote: »

. Failure to notify HMRC of this state of affairs would not result in any detriment to the OP.

too simple ... see 2 & 3 below

1. the OP is a supplier to the business and so is Self Employed with a zero net profit - so agreed - no tax to pay
BUT
2. self employed people DO have to notify HMRC of that fact and must do so within 3 months of starting up or will be penalised
http://www.hmrc.gov.uk/selfemployed/register-selfemp.htm
3. self employed people are liable to pay Class 2 NI at a flat rate of £2.65 per week unless they claim the small rate exemption
http://www.hmrc.gov.uk/forms/cf10.pdf
4. OP will be reciving payment for driving - aka hire and reward so car insurancne is a very valid issue as pointed out by jnil, ignore that at your peril OP

failure to do 2 and/or 3 will result in HMRC imposed penalties irrespective of having nil taxable profit