Section E – Mileage Allowances

Privately owned vehicle mileage allowances

HMRC publish a set of tables for approved mileage allowances for business mileage incurred in a privately owned vehicle.

Payments up to these limits are deemed to be tax free and do not need to be reported on the P11D Form. Only the excess has to be reported.

HMRC accepts that mileage allowances paid to employees, using their own privately own vehicles for business purposes, within the set limits attract no tax liability. This is because the rates are set to cover the full costs of running a privately owned vehicle. e.g. petrol, servicing, insurance, road tax, depreciation etc.

If an employee is paid at or below the set rates then there is no tax for them to pay on the receipt of the mileage allowance. However if the employee is paid less than their set limit per mile, they can claim tax relief on the difference between what they have been paid by their employer and what they could have received from the set rates. In these circumstances you can use the P11D Organiser to prepare a Business Mileage Claim form on behalf of your employee.

However if the employee receives more than the set rate for their own car, HMRC deem a profit to have been made by the employee, and will seek to tax that profit & it is this profit that has to be returned on the P11D. Class 1 NICs are also due on any profit element and have to be accounted for via the payroll.

Company car mileage allowances

If the employee has a company car but no fuel card, then HMRC publish another table for advisory fuel rates that is reviewed quarterly.

Employers can pay up to these rates tax & NIC free. Only the excess above these rates needs to be reported on the P11D form. Please note that drivers of company cars cannot claim tax relief on the difference between the actual rate paid and the advisory fuel rate if they get paid less than the advisory fuel rate.

Passenger rate

To encourage car sharing by employees, employers can pay an additional 5p per mile (tax and NICs free) for each passenger carried.