What is a reasonable mileage claim for a contractor?
Many contractors need to drive long distances in the course of their work for clients. The costs of these journeys and maintenance of the vehicle used are legitimate allowable business expenses, but working out how to claim and what to claim for can get a bit complicated. To help make sure you claim all that you’re entitled to, below we look at the basic factors to consider when working out your vehicle expenses and mileage claims.
What are the key factors for making claims?
To work out which rules apply you first need to establish the following:
- Who owns the vehicle? – There are different rules depending on whether you use a personally owned vehicle, or you use one owned by your contractor Limited Company.
- What type of vehicle is it? – The applicable rules vary for cars, vans, motorbikes and bicycles, so the type of vehicle used for the journey is relevant.
- Who originally paid the different types of costs? – Even if you own the vehicle personally, the reality is that costs such as insurance, petrol and garage bills are sometimes paid for by the company and sometimes from personal funds. Who pays makes a difference in terms of how to treat the expenses claim.
Claiming for vehicle charges on personally owned vehicles
How you choose to claim can have tax implications for both you personally and your contractor company. There are two options for claiming related expenses for contractors who use their own vehicle for business travel:
- The contractor’s company claims the costs as a business expense – It may also be possible to claim back the VAT on these expenses if the invoice is in the company’s name. Of course, there must be expected business use of the vehicle to do this. If this option is chosen a benefit in kind (BIK) charge will be applicable which will attract additional personal Income Tax.The contractor must still claim reimbursement of these costs from their company. Most will do so by making a claim for business mileage under HMRC’s Mileage Allowance Payments (MAPs) system as this allows reimbursement up to an allowable amount with no tax implications. An alternative is not to be reimbursed, but to use the HMRC mileage claim rates to offset the BIK charge.
- The contractor’s company pays the costs on the contractor’s behalf – With this method VAT is not reclaimable as the expense will be recorded as if the payment is directly to the contractor, similar to a loan. As the company is not claiming it as a business expense no BIK for the contractor arises.
What are Mileage Allowance Payments?
The contractor’s company can pay its employees Mileage Allowance Payments (MAPs) for expenses incurred during use of their own vehicle for business travel. Payments can be made up to an approved amount each year without have to report them to HMRC or paying any tax on them. These amounts are known as Approved Mileage Allowance Payments (AMAPs). Any payments or benefits over this amount must either be reported to HMRC or added to your loan account.
The ‘approved amount’ is calculated by multiplying the employee’s business travel miles for the year by the applicable rate per mile for the vehicle type.
To be certain that your vehicle expenses and mileage claims are reasonable and allowable speak with your Limited Company contractor accountants for expert advice and guidance. For more detailed information on this topic take a look at the Intouch briefing Car and Motorcycle Expenses for Contractors.
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.