Making mileage of your employees’ travel
In these days of cost control we are seeing many employers looking closely at the costs of providing employees with a company car and also, for those employees who use their own vehicle for business journeys, the cost of mileage reimbursement. There is a growing population of employers who are looking to move employees out of company cars and to offer a cash alternative instead.
Are your employees’ business travel arrangements as cost-effective and tax-effective as they might be?
In the recent case of Total People Ltd v HM Revenue & Customs, the Upper Tribunal found in favour of HMRC so that lump sum payments of cash alternatives were not payments of motoring expenditure for tax purposes. It was agreed that there was no clear link between the payments made and the actual use of the vehicle by the individual employees. Therefore, the payments made were effectively additional salary and liable in full to Class 1 National Insurance Contributions. Whilst this case found in favour of HMRC, there are still a number of opportunities for employers to set up arrangements with employees to take advantage of the reliefs which exist and thereby save money.
In addition, employees who own their own car can charge their employer 45p per mile for the first 10,000 miles pa travelled on business journeys and 25p per mile thereafter. So, for example, if an employee travelled 15,000 business miles in one year, they could claim £5,750 from the company tax-free (though it would still be a tax deductible expense for the company).
Although payments within the above limits are exempt from tax, meaning that no report needs to be made to HMRC about them, employers should ensure that adequate records are kept to demonstrate that payments satisfy the conditions for exemption. Records should relate to miles travelled and not to actual expenses incurred. It is important that employers recognise the risk (and potential cost) of a successful challenge from HMRC to business mileage reimbursement.
We recommend that employers take time to consider both the way they provide cars or mileage allowances to their employees, and the records they keep, as well as the guidance that they give to employees as to how they make their claims.