Tax advice: Business travel and cash payments

    Each month we review the emerging themes from the calls to our tax advice lines. Below is a short summary of the key points our team has been discussing with accountants in November.

    Business travel mileage for employees' own vehicles

    If an employer covers the cost of their employees using their own vehicles for business travel, there are two separate schemes to deal with the mileage expenses – one for tax and one for National Insurance.

    Tax

    If payments are made to employees above a certain amount, they have to be reported to HMRC and tax deducted.

    Mileage Allowance Payments (MAPs) are paid to employees who use their own vehicle for business journeys. An employer can pay the employee a certain amount of MAPs each year without having to report them to HMRC. This is called an ‘approved amount’.

    To calculate the approved amount, multiply the employee’s business travel miles for the year by the rate per mile for their vehicle.

    Tax: rates per business mile
     
     Type of vehicle  First 10,000 miles  Above 10,000 miles
     Cars and vans  45p  25p
     Motorcycles  24p  24p
     Bikes  20p  20p

    Example

    The employee travels 15,000 business miles in their car - the approved amount for the year would be £5,750 (10,000 x 45p plus 5,000 x 25p).

    It does not matter if the employee uses more than one vehicle in a year – it is all calculated together.

    What to report and pay

    Anything above the approved amount must be reported on form P11D and added to the employee’s pay and taxed as normal.

    Anything below the approved amount does not have to be reported to HMRC, but the employee will be able to get tax relief on the unused balance of the approved amount.

    National Insurance

    National Insurance may be due on payments relating to Relevant Motoring Expenditure (RME) which includes MAPs, payments that would be MAPs but are paid to a person other than the employee and any other cash payments made to the employee towards the use of their vehicle.

    A certain amount of RME will be exempt from reporting to HMRC or paying National Insurance on. This is called the ‘qualifying amount’.

    To work out the qualifying amount, multiply the employee’s business miles in the earning period by the rate per mile.

    National Insurance: rates per business mile
     
     Type of vehicle  Every business mile
     Cars and vans  45p
     Motorcycles  24p
     Bikes  20p

    Example

    An employee drives 2,000 miles in their van and the employer makes a payment of RME to cover this. The qualifying amount for the earnings period would be £900 (2,000 x 45p).

    What to report and pay

    If the employer pays an employee in excess of the qualifying amount, the excess should be added to their other earnings for that earnings period when calculating Class 1 National Insurance (but not PAYE tax) through payroll.

    If the RME is below the qualifying amount, nothing has to be reported and there is no National Insurance to pay.


    Cash sum payments to employees 

    The rules on cash sum payments for business expenses cover:
    • cash payments an employer provides to meet the cost of their employees’ expenses
    • expenses they have paid up front themselves and the employer is going to reimburse the cost
    • ‘scale rate payments’ paid at a level already agreed with HMRC
    • ‘round sum allowances’ which an employer gives to an employee regardless of how they spend them

    Business expenditure is incurred by some employees in the performance of their job. However, if some of the expenditure is private in nature and not solely for business, but the employer pays the cost of the private expenditure, then the costs are treated as earnings. The costs should be added to the employee’s other earnings and taxed under PAYE, with Class 1 National Insurance paid.

    If the employer makes scale rate payments for employees to cover common business expenses such as travel and meals, then the payments must be declared on form P11D, but the employer does not need to pay any tax or National Insurance.

    Round sum allowances are slightly different if an employer gives them to employees to spend as they wish, in other words not necessarily on business expenses. These allowances count as earnings and are taxable under PAYE, subject to any business expenditure being deducted.

    For further information regarding either of these hot topics, or other tax and VAT advice, our helplines are available free of charge to our Fee Protection Insurance clients and can be accessed by calling 0345 223 2727.