Explain Mileage Allowance Relief

fengirl_2

If you are trading through a limited company, the same rules apply. You can reclaim your mileage allowance through your company by putting in a monthly expense claim. The company then includes this aloowance in its annual accounts.

stphnstevey

Would it be better for a Ltd I own to provide a car as a company car or as a car allowance?

Also would it be better tax wise for the me as director to claim the highest mileage rates (ie 40p for the first 10K)? I beleive the employee is not taxed unless it goes above the HMRC's guidance. So as it doesn't cost yet 40p or 25p per mile, so effectively it is away of taking profits out of the company?

fengirl_2

Yes, you are correct that the employee is not taxed if the mileage allowance paid is under HMRC thresholds.There is nothing to stop the employee from claiming the actual costs of running the car against tax if this exceeds the mileage allowance.
If the company provided the car however, this allowance would be taxable, as would the value of the car. However, the company would receive capital allowances on the ar and tax relief on its running costs.
You have to do the maths based on the value of the car you are thinking of providing.

withabix

fengirl wrote: »

There is nothing to stop the employee from claiming the actual costs of running the car against tax if this exceeds the mileage allowance.

Are you SURE about that?

I think that was stopped a number of years ago.

stphnstevey

From a current employee who uses his own car for work, I think the mileage allowance is supposed to cover the running costs as well.

I am likely to start contracting via a Ltd - I will be doing alot of travelling and will need a car. I currently have a ersonal car I have been using whilst in perm employment. I am just trying to figure out the best way to run a car with this ltd.

I could sell the car to the ltd and then use it as a company car. It looks like I could claim back the running costs and there would be some capital gains benefit as a business asset. But as an employee I would be taxed on this benefit.

To make it complicated I might be claiming business miles via the clients expenses system.

Alternatively, I could pay myself a mileage allowance tax free and add an appropriate fee to the rate I charge.

What would be best?

fengirl_2

Yes, an employee (or a self employed person) has the choice of whether to claim the 40p/25p mileage allowance or the strict actual cost method. Most people use the 40p method as it is easier, but the strict cost method is the statutory one and so is correct. If a self employed personis VAT registered, they HAVE to use the actual cost method.

stphnstevey

If a VAT registered company purchased the car, then they could reclaim the VAT? Then the car could be provided as a company car to the employee?

Pennywise

stphnstevey wrote: »

If a VAT registered company purchased the car, then they could reclaim the VAT? Then the car could be provided as a company car to the employee?

No, VAT is never reclaimable on the purchase of a car.

stphnstevey

Pennywise wrote: »

No, VAT is never reclaimable on the purchase of a car.

What about a van?

GARDINER

Fengirl I'm afraid you are wrong the statutory way of claiming car expenses for employees is now by using the authorised rates of 40/25p