Mileage allowance relief for PAYE

Kepha

This is a query about mileage allowance relief for PAYE taxpayers. I apologise if I'm being stupid and the answer is obvious: I've spent most of today trying to work out the answer and haven't got anywhere!

My wife drove 6926 business miles during 2012-13 and was paid an extra £2621 by her employer for this (i.e. 37.8p per mile). She was taxed through PAYE for the entire £2621.

The HMRC website points us towards the P87 form but this would only give us tax relief on the difference between the mileage allowance (6926 miles x 45p per mile = £3116) and the payment (£2621), which is £495. But I thought that she should have a tax rebate on the entire £2621!

What am I missing?

Dal_Whinnie

An employer would not normally pay expenses through PAYE but return on P11D unless they had a dispensation. If it is included on P11D then you should include that amount (e.g £2,621) on your Tax Return as income and then claim the full 45p per mile as a business expense. If an employer has a dispensation then they would not include the payments made on P11D and In that case your wife would not be taxable on the £2,621 but would be able to claim the extra up to 45p per mile.

By paying through payroll and subjecting the amount to tax the employer has effectively treated the £2,621 as additional pay. Your wife can therefore claim the full mileage allowance of £3,116.

In addition to tax I assume that the payment will have been subjected to Employers and Employees NIC. I'm afraid I don't know if there is any possibility of claiming back any NIC that shouldn't have been paid but it may be worth looking up NIC and Expenses but I do know that payment of business expenses are not liable to NIC and your wife should suggest to her employer that they stop putting it through PAYE and also apply for a P11D dispensation in respect of business travel expenses. Your wife and any other employee in the same situation will then only have to claim the difference between the 37.8p and 45p (up to 10,000 miles). Both your wife and her Employer would also save NI then.

Kepha

That's very helpful, thank you.

She has completed a P87 form (neither of us have been asked to do a tax return, although this may now change . . .) claiming the entire £3116, together with a covering letter.

I'm not sure about the NICs, that's a very good point. She's asked HMRC in the letter.

CKhalvashi

Kepha wrote: »

That's very helpful, thank you.

She has completed a P87 form (neither of us have been asked to do a tax return, although this may now change . . .) claiming the entire £3116, together with a covering letter.

I'm not sure about the NICs, that's a very good point. She's asked HMRC in the letter.

She's done everything right.

NIC's she should be able to claim back.

CK

pjclar02

Hello there


Further to the points already made - if mileage payments are being paid to your wife for business miles travelled, then not only should this not be included in her payslips, but also it should not be incuded on form P11d, as payments made within the HMRC limits are automatically exempt from inclusion on the P11d.


Furthermore, 37.8p per mile seems an odd reimbursement amount - can you confirm what the narrative on the payslip is?


My first port of call would be to establish what the employer is reporting, and why it is being included on payroll - getting the employer to correct the payslips will be the best option at recovering the NIC.


It may also be that your wife can agree with the employer a more tax efficient means of reimbursement.

Kepha

She's changed employer now (NHS doctor: moves around between different trusts) but I'll get her to contact that employer to ask about the NICs. Fortunately she is no longer commuting.

The 37.8 pence per mile is an average over the whole year (£2621/6926): the reimbursement on the payslip seems to swing between 28.2p and 47.3p.

00ec25

Kepha wrote: »

The 37.8 pence per mile is an average over the whole year (£2621/6926): the reimbursement on the payslip seems to swing between 28.2p and 47.3p.

you should have said this to start with
she has apparently received at least some at more than 45ppm therefore she actually owes tax on that as it is above the approved amount.

Therefore she cannot claim the full amount as a tax refund and she will need to provide a full breakdown of the amounts she has been paid split into totals per each actual mileage rate not some spurious average

you have also now used the alarm bell word commuting - in your OP you said business miles so none of us challenged you on that . if the reality is that she was commuting then it was entirely correct that the payment was made through payroll and was taxed as it would not be business mileage but would instead be private mileage

I do hope you read this and clarify before she makes a bad mistake over a potentially incorrect reclaim

Kepha

Thanks for the useful post: your advice is really helpful and, as you say, will help avoid making a mistake with the taxman. The letter to HRMC was going to be posted yesterday but have kept it here for now, so I am very grateful for your warning.

The situation for NHS doctors in training is confusing. Her training/employment is co-ordinated by a city (teaching) hospital but she is sent out on placements to various smaller hospitals (district general hospitals). My understanding is that the teaching hospital remains her base place of work and the smaller hospital is a temporary place of work - hence she can claim the difference in mileage as business miles. However, she did have a separate contract from the smaller hospital and was paid directly by them, so it may be that her base place of work is actually the smaller hospital and therefore the payment was, as you stated, for private mileage instead of business mileage. I suppose this would make sense as to why she was paid mileage through PAYE.

I will ask her to contact her previous employers (and perhaps also the BMA) to clarify what her base place of work actually was, before making any claims to HMRC.

(To clarify on the mileage payments: she was paid 3500 miles at 47.3p (£1655.50) and 3426 miles at 28.2p (£966.13).

Incidentally, I was also reimbursed for business travel (there is no doubt about my primary place of work so it is definitely business rather than private mileage) via PAYE, although this was for public transport costs rather than car mileage.

Many thanks for your advice - you've saved us from potentially getting into quite a bit of trouble!

00ec25

OK lets start again! As one of the posters on here frequently says ... tax is all about the details and you didn't give them until now!!!

firstly have a read of this page http://www.hmrc.gov.uk/manuals/eimanual/EIM61017.htm
and let us know if she falls within the rotational training scheme relating to junior doctors as described - if she does then it all comes down to what you mean by the co-ordinating hospital and who her contract of employment is with.

Either - the smaller hospital was her employer for the rotation and its commuting so none is allowable and the payment has therefore been correctly subjected to tax in full

OR - it sounds possible that she would fall into the final paragraph of the guide, in that each DGH is a temporary workplace and so her mileage is allowable.
In that case we have the situation that she has been paid 1,655.50 using 47.3ppm whereas the approved rate is 45ppm (1,575) so an overpayment of £80.50 on which tax due would be -32.20 (-16.10 @20%?)

also she's been paid 966.13 at 28.2 instead of 45ppm (1,541.70) so an underpayment of 575.57 on which tax relief is available of +230.23 (+115.11 @20%)

then we have to deal with the fact the whole lot has been taxed anyway so 2,621.63 has been taxed at 40% (20%?) meaning she's paid +1,048.65 in tax (+524.32 @20%?)

So, if the latter case applies and it is all allowable expenses, she would be making a net reclaim for:
tax relief due 230.23 and 1048.65 less tax owed on amounts paid above approved rate 32.20 = net tax refund due 1,246.68 (assuming 40% taxpayer)




as an aside re your PAYE expenses experience, a good few years ago now HMRC were pushing employers to pay all expenses through payrolls so that the tax treatment was crystal clear - either taxable or non taxable. However, they were pre-empting the legislation that would drive this and that never happened, so it was quietly dropped by HMRC, but not before a few employers had made the switch and some (incl the Trust I worked at) never reverted to paying separately much to the annoyance of staff who thenceforth only got expenses paid monthly with their salary

zygurat789

00ec25 wrote: »

OK lets start again! As one of the posters on here frequently says ... tax is all about the details and you didn't give them until now!!!

firstly have a read of this page http://www.hmrc.gov.uk/manuals/eimanual/EIM61017.htm
and let us know if she falls within the rotational training scheme relating to junior doctors as described - if she does then it all comes down to what you mean by the co-ordinating hospital and who her contract of employment is with.

Either - the smaller hospital was her employer for the rotation and its commuting so none is allowable and the payment has therefore been correctly subjected to tax in full

OR - it sounds possible that she would fall into the final paragraph of the guide, in that each DGH is a temporary workplace and so her mileage is allowable. In that case we have the situation that she has been paid 1,655.50 using 47.3ppm whereas the approved rate is 45ppm (1,575) so an overpayment of £80.50 but she has also been paid 966.13 at 28.2 instead of 45ppm (1,541.70) so an underpayment of 575.57 which obviously means a net underpayment of 495.07.

So only in the latter case would she be due a tax refund of 495.07 x her tax rate 40%? (I assume at her grade she is higher rate?) = £198.03 (or £99.01 if basic rate payer)


as an aside re your PAYE expenses experience, a good few years ago now HMRC were pushing employers to pay all expenses through payrolls so that the tax treatment was crystal clear - either taxable or non taxable. However, they were pre-empting the legislation that would drive this and that never happened, so it was quietly dropped by HMRC, but not before a few employers had made the switch and some (incl the Trust I worked at) never reverted to paying separately much to the annoyance of staff who thenceforth only got expenses paid monthly with their salary

So the mileage is allowable and the £2621 has been taxed but the only claim is for the excess over what has been paid and taxed?

zygurat789

Kepha wrote: »

This is a query about mileage allowance relief for PAYE taxpayers. I apologise if I'm being stupid and the answer is obvious: I've spent most of today trying to work out the answer and haven't got anywhere!

My wife drove 6926 business miles during 2012-13 and was paid an extra £2621 by her employer for this (i.e. 37.8p per mile). She was taxed through PAYE for the entire £2621.

The HMRC website points us towards the P87 form but this would only give us tax relief on the difference between the mileage allowance (6926 miles x 45p per mile = £3116) and the payment (£2621), which is £495. But I thought that she should have a tax rebate on the entire £2621!

What am I missing?

So after all that:-

Business miles 6926 X .45p = £3116.70
Less expenses paid free of tax nil
Claim value £3116.70
Tax refund £623.34 @ 20% or 1246.68 @ 40%, or somewhere in between as applicable.