Claiming mileage as an independent contractor
As a contractor, you’ll undoubtedly already be claiming expenses against your tax bill. However, one of the most common areas of confusion is that of mileage. Many contractors may wonder whether they would be better off purchasing a company car (when trading as a Limited Company) or whether claiming the standard mileage allowance is in fact the most attractive option. On top of that, questions often arise as to how much can be claimed, up to what threshold and on what journeys.
With this in mind, here’s our own look at claiming mileage as a contractor, outlining everything which we believe you might need to know.
Company car vs mileage allowance payments
Limited Company contractors do have the ability to purchase a company car should they wish. From the outset, a company car might look like the best option. However when looked at over a number of years and when fuel, road tax, insurance and maintenance are taken into account, this isn’t always the case.
Many contractors make the mistake of looking at the tax savings across the first year which, when buying a company car, will always be greater due to the tax relief associated with the initial capital allowance on the purchase. In addition, many may not consider that if any personal journeys are made, this will be seen as a taxable benefit and the savings you might have made on initial corporation tax when purchasing the vehicle are suddenly diminished.
The company will also be liable to pay Class 1A National Insurance (NI) on the cost of providing a car, just as it would if you had been paid the extra salary and purchased a car with that directly.
Whilst there’s always exceptions, in most cases, once the tax and NI is taken into account over a longer period, especially if personal journeys are undertaken, using your own car and claiming mileage usually works out to be not only the simpler but also the most financially appealing option.
How much can you claim?
The current rates* per business mile as outlined by HMRC are as follows:
*Correct at time of publication 29/10/15
To calculate the Approved Mileage Allowance Payments (AMAPs) over a given period, it is simply a case of multiplying the total number of business miles by the rate per mile for the vehicle. This can be used across more than one vehicle and should be calculated together as one allowance.
As a working example, if 12,000 miles were travelled each year in a car, the mileage allowance would be £5,000, worked out as:
- 10,000 miles at 45p per mile (£4,500)
- 2,000 miles at 25p per mile (£500)
It is also worth noting that additional expense of up to 5p per mile can be claimed when travelling with more than one person in the car. This is of course only when the passenger is also travelling for business purposes.
What journeys can mileage be claimed for?
When the purpose of travel is solely for business, expenses can be claimed back by the contractor as an ‘approved amount’. As would be expected, not all journeys can be claimed for and it is important to be able to correctly distinguish between ‘business’ and ‘private’ miles.
HMRC define ‘business’ travel as, “journeys forming part of an employee’s employment duties (such as journeys between appointments by a service engineer or to external meetings) and journeys related to an employee’s attendance at a temporary workplace.”
As such, for the majority of contractors, it is the latter which is most important given that a workplace is usually temporary for the duration of a contract. HMRC do not count travel between home and a fixed, (permanent place of work) as business travel, unless you have to travel to another location ‘outside the norm’ of your permanent place of work.
It is also important when claiming business mileage that you keep note of the following information which may be required by HMRC in order to qualify as an ‘approved amount’:
- The date of the journey
- The start and end locations
- The reason for the journey and the parties involved
- The number of miles
- The name of any passengers
- The mileage calculations
If you want any further information on claiming business mileage as a contractor, you can find this in our ‘What is a reasonable mileage claim for a contractor?’ blog. Alternatively, contact one of our team on 01202 375 562, to see how Intouch Accounting can help keep you compliant and maximise your income.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.