You can claim ‘allowable business expenses’ for vehicle insurance, repairs and servicing, fuel, parking, hire charges, vehicle licence fees and breakdown cover. You can not claim for non-business driving or travel costs, fines or travel between home and work
There are two ways of claiming motoring costs for business travel, with a difference for sole traders and companies
Sole traders can either claim tax relief for the business percentage of total motoring costs (fuel, repairs, insurance and capital allowances), ideally backed up by a mileage log. Practically speaking, all costs are posted through the books, and then the personal percentage is added back, or taken out as an expense, at the tax return stage.
Alternatively, under the simplified expenses rules, the Approved Mileage Allowance Payment (or AMAPS) rates of 45p/mile for the first 10,000 business miles in the year and 25p/mile thereafter can be claimed. This covers all motoring costs and is either paid effectively as a mileage claim as to an employee, or effectively journaled in as a debit to motoring and a credit to capital introduced/drawings.
For companies, the structure is more rigid. Either the company pays all of the costs and claims corporation tax relief, with the employee paying income tax on a benefit in kind of the company car, or the employee pays all the costs themselves, and makes an expense claim in accordance with AMAPS rates for business miles travelled, which must be supported by an expense claim itemising business trips.
Where a company car is provided, the director will need to consider whether fuel will also be provided paid for by the company, which is a separate benefit in kind. The tax rates on fuel are fairly hefty, and often the income tax is more than the cost of private fuel (which still needs to be paid for by the company, thus reducing profits available as dividends) so it is important that the overall position is considered carefully.
Where a company car is provided without fuel, reimbursement of business mileage is by using what are called “fuel only mileage rates” which are published every 3 months by HMRC. These rates vary by engine size and fuel type and can be used as a basis of VAT reclaim for mileage costs whether you are reimbursing fuel only, or full AMAPS for a director’s own car.
If your employee carries another employee in their own car or van on a business journey, you can pay them passenger payments
A common situation is where the director uses his own car for a long business journey, say to attend a trade show and pays for a tank of fuel through the company to cover the cost of the journey. Logically, this is fine, but technically, HMRC could impose the fuel benefit in kind charge for the whole year if this method is used – instead, the director should claim under AMAPS, which will also give a higher claim in all but the most extreme cases, and if your car uses more than 45p per mile in fuel then tax relief is the least of your concerns!
Having covered how the business owner can claim back the cost of their business trips, we must now consider which journeys made can be classified as business, and which are private.
Travel to a permanent workplace is a commute and therefore a private journey.
Travel to a temporary workplace is business travel and can be claimed. A temporary workplace becomes permanent, if the attendance at the workplace will exceed BOTH 40% of your working time (2 days per week) AND 24 months (or all/nearly all of the contract), this is classified as a permanent workplace as soon as this is known it will happen – the first 24 months are not exempt – E.G. you agree to work on a project 3 days per week for 18 months at a client’s site – more than 40% of your working week, but less than 24 months so = temporary. After 12 months, the contract is extended by an additional 18 months on top of the initial 18 to total three years. From this day on, it is a permanent workplace and therefore a private journey which cannot be paid by the business as it is expected to last over 24 months even though we are only 18 months in.
If you have any questions on any of the above, or are unsure whether you can claim a cost or not, please give us a call on 01865 379272 and we’ll be happy to assist you.