A few of your employees are complaining that the amount you pay for business journeys made in their personally owned cars hasn?t increased for a long time. If you pay them more than HMRC?s approved rates, what?s the tax and NI position?
AMAPs
HMRC?s approved mileage allowance payments (AMAPs) made by employers to directors and employees who use their own cars, vans or motorcycles for business are exempt from tax and NI. HMRC considers that the payments should fully cover the car owner/drivers for business use. In reality AMAPs haven?t kept track with rising costs and are way short of the rates published by motoring organisations such as the AA.
You?re probably familiar with the AMAP rates, but just in case you need a reminder the tax and NI-free amounts you can pay are:
Vehicle type (Allowance per mile)
Cars and vans – first 10,000 miles per year (45p)
Cars and vans – mileage over 10,000 (25p)
Motorcycles – all mileage (24p)
More or less
If you pay mileage allowances at a lower rate than shown in the table above, the director or employee receiving them can claim a tax deduction for the difference. However, if you pay a higher rate, the difference is taxable as a benefit in kind and counts as salary for NI purposes.
Tip.?Take care to include excess mileage payments in your payroll only for Class 1 NI, and report them on?Form P11D?for tax while excluding them for Class 1A NI (because Class 1 has already been paid).
NI loophole
Class 1 employees? and employers? NI is only payable on mileage allowances in excess of the higher mileage rate, i.e. 45p, even where it?s paid for mileage at the over 10,000 mile rate. You can use this loophole to gain a small NI advantage for those who travel a lot for business.
Example.?Acom Ltd has several employees who use their cars for work driving 15,000 miles per year. It currently pays the AMAP rate, but wants to increase all mileage payments by 5p per mile. This would mean each employee will have to pay tax on ?750 per year. Employers? and employees? NI would apply to ?250 and cost up to ?65 (?250 x (13.8% + 12%). However, if Acom increased the rate only when over 10,000 miles by 15p (to 40p per mile), the taxable amount would still be ?750 (5,000 x 15p), but no NI would be payable as the increased rate would still be less than the NI exempt amount of 45p per mile.
Don?t overlook related costs
AMAPs aren?t intended to cover motoring costs incurred which aren?t directly related to running a vehicle. This means that road tolls, parking costs, congestion and similar charges can be reimbursed on top of AMAPs. However, fixed costs for keeping and maintaining a car, such as insurance, finance charges and cleaning, are covered. So no matter how you personally pay for these you can?t claim any extra tax relief if the AMAPs don?t cover them.
Tip.?Remember that the tax and NI exemption for AMAPs applies to the person using the car etc. for business, not the vehicle owner. So, if you?re a director who?s borrowed your other half?s car for a business trip, you?re still entitled to the full tax and NI-free mileage rates.
Payments in excess of HMRC?s approved mileage rates are taxable as a benefit in kind and must be reported on Form P11D. The NI treatment is different – the excess must be added to salary. The good news is that mileage rates for cars and vans only ever count as excess if they exceed the higher approved rate, i.e. 45p.