Travelling on business may be the most widespread expense which is reimbursed to an employee by an employer.
It is only on rare occasions that travel between an individual’s home and place of work can be reimbursed without giving rise to a tax charge.
We set out below the main rules which apply when an individual uses their own car for travel on the business of the employer and then we conclude by considering other forms of business travel.
Using your own car - what qualifies as business travel?
Do I have to pay tax and NIC on my business travel?
What are the approved mileage allowance payment (AMAP) rates?
What if I am paid more than or less than the approved (AMAP) rate?
What if I take someone with me when on business?
How do I work out tax on motoring expenses?
How does my employer work out the NIC due on my motor expenses?
Will I have to pay tax and NIC if my employer pays for my business travel?
What records should I keep?
What is a dispensation?
Travel and related costs
Business travel includes journeys you have to make to carry out your work. These include trips such as travel from your office or place of work to visit your customer using your own car, motorbike, bicycle or your van.
Business journeys are also those you make to or from a from a place where you have to be to do your job - for example if you travel from home to visit a client or customer - unless the journey is practically the same as the journey from your home to your place of work because the customer lives near your office.
You cannot usually include your daily journey to work as business travel.
You cannot include any private travel where the purpose of the journey is not for business.
If your employer pays you for normal commuting - this is like having an additional salary paid to you and your employer will need to deduct tax and NIC from the amount paid to you.
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Many employees will be paid an allowance for using their own vehicle for business travel. Usually they will be paid so much per mile.
You can receive up to a maximum amount per mile without having to pay any tax. This is the approved mileage allowance payment (AMAP). This allowance is also used to see if you will need to pay tax and NIC on your expenses.
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The approved mileage rates are:
| First 10,000 business miles in the year | | Each mile over 10,000 miles in the tax year | | Cars and vans | 45p | | 25p | | Motorbikes | 24p | | 24p | | Bicycles | 20p | | 20p | |
If you have more than one job and your employers are not connected with each other, that is the same people do not control each business, you can have a 10,000 mile limit for each job you hold.
If the employers are connected with each other, you have only one 10,000 mile limit to be divided between all affected jobs.
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If you are paid more than the AMAP rate you will have to pay tax on the excess via your coding notice or your tax return.
Your employer will need to work out whether you have to pay any extra NIC.
If you are paid less than the AMAP rate you can get tax relief against your earnings for the difference.
This relief is called mileage allowance relief or MAR. To make a claim you will need to keep a record of your business miles and the mileage allowance payments made to you by your employer.
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If your employer pays you for taking a passenger, anything over an allowance of 5p per mile will be taxable and NIC-able. The passenger must also be an employee and the journey must be for business.
Unlike AMAP, if you are paid less than 5p per mile to carry a passenger you cannot claim any tax relief on the difference.
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You need to:
- Work out your business mileage for the tax year.
- Multiply your business miles by the AMAP rate to give you the total tax free payment.
- Add up the allowances you got in the tax year from your employer.
- If you had excess allowances from your employer you will have to pay tax on the extra or if your allowance was less than the total tax free payment you will be able to claim mileage allowance relief. Have a look again at this in What if I am paid more or less than the approved rate?
You can see to work out your own tax in the examples Ravi and Jock.
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As with working out your tax on motor expenses How do I work out tax on motor expenses?, your employer will look at steps 1 and 2 to see if you have made a profit.
If the allowances paid to you by your employer are more than your business mileage at the AMAP rate, you will pay NIC on the difference. Your employer should include the excess in the payroll and calculate the NIC due when working out your wages.
You can see how to work out your own NIC in the example Janice.
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If the amount your employer repays you is the same as the expenses you paid out on business travel, there will be no tax due.
If your employer does not repay you in full for your business travel you can deduct the difference from earnings from the same employment.
If you get a travel allowance you will have to pay NIC on the difference between what you pay out yourself and the allowance.
Congestion charges are an allowable expense if paid by your employer but incurred on business travel.
Typical expenses paid by employers include:
- Payments made to you to pay for flights or train tickets whether you are paid before or after the journey.
- Payments made by your employer on your behalf for travel expenses and hotels etc.
- Payments made on your employer's credit card for travel and accommodation.
- A round sum allowance for travel expenses.
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You should keep a log of business travel to include dates, destination and how many business miles you travelled.
Keep all receipts (for example, receipts for taxi or train fares) as proof of payments you have made including credit card statements. If you do not get a receipt make a note of the payee, what you spent and the date.
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When the expenses that your employer pays you are fully covered by your tax relief, your employer can ask HMRC to issue a 'dispensation'.
If your employer has a dispensation you will get tax relief automatically. Your tax code will not show the expense payments and you should not include them on your tax return if you get one.
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Travelling expenses
You can deduct your travelling expenses where you incur them in carrying out your employment or travelling to or from a place where you carry out your job provided the journey is not ordinary commuting between home and your normal permanent workplace, or is private travel.
However, if you are a site based employee with no permanent workplace (any job at a particular site is not expected to last more than 24 months otherwise the site becomes a permanent workplace) you can claim the cost of travelling to and from home.
This rule does not apply if your job is only temporary and will last for less than 24 months and all or most of your work is based on the same site (compared to someone in a permanent job whose work on a particular site will be for less than 24 months).
Journeys that are partly business and partly private will be allowed if mainly for business.
Travel between two workplaces for the same job is allowable.
Expenses whilst travelling
You can claim your expenses on your tax return. If you do not need to fill in a return, you complete form P87 - Expenses claim.
You will normally get any relief in your PAYE code.
You can normally claim costs for meals and accommodation - called 'subsistence costs' when you are away on business.
You can also claim an allowance up to £5 per night to cover your personal expenses where you are away from home overnight on a business trip and this rises to £10 per night if you are overseas.
If you have to travel on business you can get tax relief for the full costs of that travel. If the travel is by car you will need to look at the section Do I have to pay tax and NIC on my business travel?
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| Ravi - mileage allowance over AMAP rate Ravi uses his own car for his business travel. In the tax year 2013/14 (year to 5 April 2014) he travelled 8,000 miles on business. His employer pays him 50p per mile for all business mileage. 1
Ravi's business mileage was 8,000 miles 2
The AMAP rate for a car for the first 10,000 miles is 45p per mile. Using that rate Ravi would have been paid 8,000 x 45p = £3,600 (a) 3
Ravi was actually paid 50p per mile so his total allowance from his employer was 8000 x 50p = £4,000(b) 4
The difference between (a) and (b) is £400 and so Ravi will pay tax on his profit of £400. |
| Jock - mileage allowance under AMAP rate - MAR claim Jock uses his own car for his business travel. In the tax year 2013/14 (year to 5 April 2014) he travelled 6,000 miles on business. His employer pays him 25p per mile for all business mileage. 1
Jock's business mileage was 6,000 miles 2
The AMAP rate for a car for the first 10,000 miles is 45p per mile. Using that rate Jock would have been paid 6,000 x 45p = £2,700(a) 3
Jock was actually paid 25p per mile so his total allowance from his employer was 6000 x 25p = £1,500 (b) 4
The difference between (a) and (b) is £1,200 and so Jock will be able to claim MAR on £1,200. |
| Janice - NIC on motor expenses Janice uses her own car for business travel. In the tax year 2013/14 (year to 5 April 2014) she travelled 5,000 miles on business. Her employer pays Janice 50p per mile for all business mileage. 1
Janice's business mileage was 5,000 miles 2
The AMAP rate for a car for the first 10,000 miles is 45p per mile. Using that rate Janice would have been paid 5,000 x 45p = £2,250 (a) 3
Janice was actually paid 50p per mile so her total allowance from her employer was 5000 x 50p = £2,500 (b) 4
The difference was a profit of £250. Janice will pay NIC on £250. If however Janice was only paid 30p per mile, she will not make any profit on her motor expenses as she is paid less than the AMAP rate. In that case Janice will not need to pay any extra NIC. |
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