Courier mileage allowance - help!

frankie2789

Hi everyone, sorry to post straight after joining but I have a question please.

I have been offered courier work where I would get 60p per loaded mile using my own car.

I notice HMRC have an allowance of 45p per mile up to 10000 miles then 25p per mile.

Obviously I understand courier work isn't particularly well paid, and there are lots of other costs like fuel, insurance, servicing etc.

However just regarding tax, it seems to be an almost tax-free job unless I am missing something! Can someone please let me know if I am mistaken about this?

So for example after I complete the first 10000 miles, the situation for the next 10000 miles would be as follows:
- Gross income: £3000 (60p per loaded mile for 5000 miles, then nothing for the return journeys)
- Tax allowance: 25p x 10000 = £2500
- Taxable income: £500
- Income tax to pay: £100
- Fuel costs: say 12p a mile so £1200
- Income minus fuel: £1800

In a 'normal' job, with £1800 income, the tax would be £360 but I would only be paying £100. So is the government basically letting me keep the difference (£260) for the extra costs associated with courier work eg insurance, servicing etc? I don't understand why it's so generous. It looks too good to be true - so presumably it is!

Thanks everyone,
Frank

TheCyclingProgrammer

Mileage allowance is to designed to cover more than fuel costs. It’s to cover all the costs of running your vehicle for business purposes.

Presumably as a courier you’d be paying an extra premium for your insurance as well as face increased servicing and maintenance costs due to the increased mileage. To be earning at least the equivalent of the minimum wage you’d need to be doing at least 12 loaded miles an hour, that’s nearly 100 loaded miles a day, even more once you add the unpaid unloaded miles. That’s a lot of miles each year.

Note that you cannot switch between using a flat rate and claiming actual costs for the same vehicle so you should make sure you choose the approach that makes the most sense for you.

https://www.gov.uk/simpler-income-tax-simplified-expenses/vehicles-

It’s not a tax free job, but as a self employed business it’s normal to only pay tax on your profits.

00ec25

frankie2789 wrote: »

Hi everyone, sorry to post straight after joining but I have a question please.

I have been offered courier work where I would get 60p per loaded mile using my own car.

I notice HMRC have an allowance of 45p per mile up to 10000 miles then 25p per mile.

Obviously I understand courier work isn't particularly well paid, and there are lots of other costs like fuel, insurance, servicing etc.

However just regarding tax, it seems to be an almost tax-free job unless I am missing something! Can someone please let me know if I am mistaken about this?

So for example after I complete the first 10000 miles, the situation for the next 10000 miles would be as follows:
- Gross income: £3000 (60p per loaded mile for 5000 miles, then nothing for the return journeys)
- Tax allowance: 25p x 10000 = £2500
- Taxable income: £500
- Income tax to pay: £100
- Fuel costs: say 12p a mile so £1200
- Income minus fuel: £1800

In a 'normal' job, with £1800 income, the tax would be £360 but I would only be paying £100. So is the government basically letting me keep the difference (£260) for the extra costs associated with courier work eg insurance, servicing etc? I don't understand why it's so generous. It looks too good to be true - so presumably it is!

Thanks everyone,
Frank

you are confusing yourself because you are thinking like an employee claiming expenses from their employer. You are not an employee, you are a self employed trader liable for tax on your profit.

Your income
It appears you will be working as a self employed driver. You will be paid at the rate of 60p per "loaded" mile.

That will generate a total gross income for the year 60p x mileage paid = £X

Your expenses
If (your choice as noted in post above) you choose to apply the "simplified expenses" method your costs will be the mileage you undertake @ the HMRC rates.
So you will have costs of 45p x 10,000 miles + 25p x mileage in excess of 10,000

That will generate a total cost of £Y

Your taxable profit
As a self employed person you will pay tax on your profit.

Your profit is £X - £Y (ie: income - expenses = taxable profit)

You then of course also get your personal allowance so your tax to pay = (profit - personal allowance) x tax rate

You do not pay £100 of tax in the way you have shown, that is totally wrong. Re-working your figures the correct position would be :

Income: assuming you do 20,000 miles in total, of which 10,000 counts as "loaded", so 10,000 x 60p = £6,000 income

Costs ("expenses"): There is no distinction between loaded and unloaded. Either you are undertaking a business journey there and back or you are not, so:
20,000 miles covered on business: 10,000 @45p (total £4,500) and 10,000 @ 25 = total (£2,500) Total expenses £7,000

taxable profit: 6,000 - 7,000 = negative
Your business is loss making in terms of its tax position.
Note, as ,mentioned by others if you use the simplified method it covers all the vehicle related costs: fuel, repairs, servicing, tyres, road tax, insurance etc. Therefore, whether you actually have excess income after you have paid those actual costs is what you need to focus on in terms of deciding whether it is worth you doing this work in the first place.

frankie2789

Thanks for that. My point wasn’t really about low wages or high costs - all of which is obviously true - rather, it’s that the mileage allowance is structured in a way that means a very low percentage of income is paid in income tax. In fact using my figures but for the first 10000 miles in the year (45p per mile), the tax allowance is £4500 and gross income is only £3000, so the £3000 is tax-free and I can also to deduct £1500 from further earnings before any tax is payable at all!

So yes, low pay, long hours and high expenses. But low tax.

comeandgo

You can’t claim the mileage tax allowance and claim for your fuel expense, it’s one or the other.

frankie2789

00ec25 wrote: »

you are confusing yourself because the mileage rates apply to employees claiming expenses from their employer. Your are not an employee, you are a self employed trader liable for tax on your profit.

Your income
It appears you will be working as a self employed driver. You will be paid at the rate of 60p per "loaded" mile.

That will generate a total gross income for the year 60p x mileage paid = £X

Your expenses
If (your choice as noted in post above) you choose to apply the "simplified expenses" method your costs will be the mileage you undertake @ the HMRC rates.
So you will have costs of 45p x 10,000 miles + 25p x mileage in excess of 10,000

That will generate a total cost of £Y

Your taxable profit
As a self employed person you will pay tax on your profit.

Your profit is £X - £Y (ie: income - expenses = taxable profit)

You then of course also get your personal allowance so your tax to pay = (profit - personal allowance) x tax rate

You do not pay £100 of tax in the way you have shown, that is totally wrong. Re-working your figures the correct position would be :

Income: assuming you do 20,000 miles in total, of which 10,000 counts as "loaded", so 10,000 x 60p = £6,000 income

Costs ("expenses"): There is no distinction between loaded and unloaded. Either you are undertaking a business journey there and back or you are not, so:
20,000 miles covered on business: 10,000 @45p (total £4,500) and 10,000 @ 25 = total (£2,500) Total expenses £7,000

taxable profit: 6,000 - 7,000 = negative
Your business is loss making in terms of its tax position.

Yes so if I am making a loss, I do not pay any tax. In fact let's say I start the tax year by doing 20000 miles of courier work, then do other normal employment in an office for the rest of the year. At the start of that office work I have so far earned 'minus £1000' in the tax year, so I can earn £1000 in the office (ignoring my personal allowance) before I start paying any tax at all. So from courier I have earned 'minus £1000' in tax terms, yet in terms of money into and out of my bank account, £6000 has come in, I have paid out about £2500 in fuel and say another £1000 in other vehicle costs, so a net total of about £2500 into my bank account, of which minus £1000 is taxable. Am I missing the point? NB on my original figures I mentioned £3000 of income and £2500 of allowable expenses, which I assume means a profit of £500 overall?

00ec25

frankie2789 wrote: »

In fact using my figures but for the first 10000 miles in the year (45p per mile), the tax allowance is £4500 and gross income is only £3000, so the £3000 is tax-free and I can also to deduct £1500 from further earnings before any tax is payable at all!

So yes, low pay, long hours and high expenses. But low tax.

yes, as shown in my post if you are only recieving income for half the distance you actually drive then obviously the first 10,000 miles of costs will only "produce" 5,000 miles of income so there will of course be a cost excess as you show of £1,500

however, it would be a fatal mistake to think you are getting tax free income as that could result in you making very bad decisions about your future. What are you doing about state pension and national insurance for example?

frankie2789

00ec25 wrote: »

yes, as shown in my post if you are only recieving income for half the distance you actually drive then obviously the first 10,000 miles of costs will only "produce" 5,000 miles of income so there will of course be a cost excess as you show of £1,500

however, it would be a fatal mistake to think you are getting tax free income as that could result in you making very bad decisions about your future. What are you doing about state pension and national insurance for example?

Presumably I can pay some pension and NI costs from the money I am saving in tax!

frankie2789

comeandgo wrote: »

You can’t claim the mileage tax allowance and claim for your fuel expense, it’s one or the other.

Yes sorry for any confusion, I was talking about two different things at the same time. I mention fuel in the context of the physical cash flows in and out of my bank account. Obviously tax is a separate calculation, based in my case on mileage allowances.

My basic underlying point here is that I can make a profit in terms of actual cash, yet the artificiality of the mileage allowance makes it look like I am making of loss for tax purposes. Therefore I can pay a negative amount of tax despite getting a positive sum of cash into my bank account, at least for the first 10000 miles per year. After that it just becomes a very low rate of tax, again because I can count the 25p mileage allowance as 'expenses' despite my cash expenses being significantly less.

frankie2789

Just to confirm the figures:
- First 10000 miles: £4500 allowance, £3000 income therefore £1500 loss for tax purposes
- Second 10000: £2500 allowance, £3000 income, therefore £500 profit for tax purposes
- Overall for first 20000 miles: £7000 allowance, £6000 income, therefore £1000 loss for tax purposes.

I still don't understand how I'm 'totally wrong' about the second lot of 10000 miles giving a taxable profit of £500 with therefore £100 (20%) being payable in tax.

TheCyclingProgrammer

It seems what you’re asking is: can you benefit from the mileage allowance because the permitted allowance exceeds your actual vehicle costs?

The answer is, yes you can. Clearly if the total mileage allowance is higher you’re benefit from tax relief on a higher amount than had you just claimed relief for your actual costs. This is the nature of a flat rate simplified expense system.

Conversely you could lose out if your actual costs start to exceed the flat rate. This is why it’s important to be sure that the flat rate is right for you now and going forward (or until you change your vehicle).

I would focus less on the tax being saved me more on whether or not this is profitable long term. Because you only get paid when you’re carrying a load, this would probably require some clever planning and logistics to ensure you keep your time on the road unloaded to a minimum. Large courier firms do this using clever software and route planning systems but as a small independent driver you don’t have such an advantage.