Car allowance mileage and claim through HMRC

lunacoys

Afternoon, can I ask for some guidance...

My employers pays me a car allowance as an alternative to a company car. I receive c £6k pa.

They pay me 22p mileage via my payroll (taxable). On top of this they then pay me the full HMRC allowable mileage (and make reference to it as such) at a rate of 45p via a non taxable expenses system, but then take this back from my car allowance received monthly through salary.

Its a very messy system which presumably has some benefit for my employer financially. But confusing for all of us car allowance people. As I haven't actually received the HMRC full allowable expense of 45p, I believe I can claim the difference through tax returns of 23p per mile (probably more given the 22p is taxed).

Can anyone offer any advice please?
Thanks

zagfles

lunacoys wrote: »

Afternoon, can I ask for some guidance...

My employers pays me a car allowance as an alternative to a company car. I receive c £6k pa.

They pay me 22p mileage via my payroll (taxable). On top of this they then pay me the full HMRC allowable mileage (and make reference to it as such) at a rate of 45p via a non taxable expenses system, but then take this back from my car allowance received monthly through salary.

Its a very messy system which presumably has some benefit for my employer financially. But confusing for all of us car allowance people. As I haven't actually received the HMRC full allowable expense of 45p, I believe I can claim the difference through tax returns of 23p per mile (probably more given the 22p is taxed).

Can anyone offer any advice please?
Thanks

By the looks of it it benefits you as well as the company. You're getting full tax relief so no messing around claiming, plus you pay less NI than you would if they used the usual method of paying, plus your P60 will correctly relect your annual earnings so no messing around with deductions if you claim tax credits or anything else which uses your P60 income.

As an example (check this out to see if this is how your scheme works)

If you do 1000 miles, and you pay basic rate tax, you'll get:

£450 paid to you tax free.
£230 less in taxable pay (£220 mileage minus £450 car allowance reduction). This will save you £46 tax and £27.60 NI.

So you get £293.60 inc the tax/NI saving.

If they used the usual method of paying the 22p per mile tax free and no allowance deduction, you'd only get £220. You could then claim tax relief on the difference between the full allowed amount, ie £450, and the £220 you got paid, ie 20% of £230, so £46 as above. £266 in total. But you'd need to claim this with HMRC direct eg by doing a tax return. And you won't get the NI relief.

So the way your company are doing it is far easier than the usual way. It saves them NI too so they benefit as well.

But check is actually happens like that, eg compare a payslip with mileage to one without.

lunacoys

Thanks zagfles - this now makes a lot more sense.

I think where I was getting confused was the fact if I made a HMRC claim it would be paid to me in it's entirety at £230 based on your example (i.e. 1,000 miles at the difference of 23p per mile). But I think I now realise I only get tax relief on this, so (at basic rate tax) my benefit is only £46 instead of the £230. I was eager to make a claim through HMRC for this reason thinking I could get a higher sum back, but that appears not to be correct.

Could you confirm my understanding of this is accurate. Thanks!

zagfles

lunacoys wrote: »

Thanks zagfles - this now makes a lot more sense.

I think where I was getting confused was the fact if I made a HMRC claim it would be paid to me in it's entirety at £230 based on your example (i.e. 1,000 miles at the difference of 23p per mile). But I think I now realise I only get tax relief on this, so (at basic rate tax) my benefit is only £46 instead of the £230. I was eager to make a claim through HMRC for this reason thinking I could get a higher sum back, but that appears not to be correct.

Could you confirm my understanding of this is accurate. Thanks!

Yes you'd only get the tax relief on the difference.

I wish my employer would operate a similar system, it might look confusing but it basically sorts everything for you, getting you the tax relief automatically and also getting you NI relief.