What if I use my own car for business purposes?
In this section, we set out the main rules that apply when you use your own car for travel on the business of your employer. We also consider other costs you may incur when travelling on business.
You can read more about which travel expenses you may be able to claim tax relief on in our section ‘What travel expenses can I claim?’
One of the most common expenses reimbursed to an employee by an employer is travel for business purposes. This may involve you using your own car.
You are entitled to tax free reimbursement for costs of travelling that you are obliged to incur in order to do your job; if your employer does not reimburse these expenses, you may be able to claim a deduction from your income. You will only be able to claim tax back if you are a taxpayer.
You cannot generally claim reimbursement tax free from your employer of the expense of normal commuting – travel between your home and place of work. If your employer does reimburse you for the cost of normal commuting, you usually have to pay tax on this.
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 customers using your own car, motorbike, bicycle or van. For example, this may apply if you are a service engineer and move from place to place during the day.
Business journeys also include travel directly to or from your home to visit a client, unless the journey is practically the same as the journey from your home to your normal place of work, for example, because the customer lives near your office.
You can make a claim for tax relief on the costs of travel between two workplaces for the same job.
You cannot usually include your daily journey to work as business travel. However, if you are a site-based employee with no permanent workplace – any job at a particular site that 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 fewer 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.
You cannot include any private travel where the purpose of the journey is not for business, for example, to go to the shops.
If your employer pays you for normal commuting or private travel, this is like having an additional salary paid to you, and your employer must deduct tax and National Insurance contributions (NIC) from the amount paid to you.
Your employer may pay you an allowance for using your own vehicle for business travel. Usually this will be based on so much per mile, not your actual costs.
You can receive up to a maximum amount per mile without having to pay any tax and NIC. The maximum amount per mile is known as the approved mileage allowance payment (AMAP).
The approved mileage allowance payment (AMAP) rates are:
|First 10,000 business miles in the year||Each business mile over 10,000 miles in the tax year|
|Cars and vans||45p||25p|
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 you have more than one job and your employers are connected with each other, you have only one 10,000 mile limit to be divided between all affected jobs.
If your employer pays you more than the AMAP rate, this is considered a ‘benefit’ and you have to pay tax on the excess – typically via your coding notice or your tax return. See our section ‘how do I check my coding notice?’ for more information.
Your employer must work out whether you have to pay any extra NIC and if you do, they will take this out of your wages via the payroll.
If your employer pays you less than the AMAP rate, you can get tax relief against your earnings for the difference, assuming you earn enough to pay income tax.
This relief is called mileage allowance relief (MAR). To make a claim you need to keep a record of your business miles and the mileage allowance payments made to you by your employer.
If you travel 10 business miles and your employer reimburses you nothing, you can claim £4.50 of tax relief (10 miles at 45p). If you normally pay tax at 20%, this means you get 90p of tax relief (£4.50 at 20%).
If you pay tax at the 40% rate, you get £1.80 of tax relief (£4.50 at 40%).
However, if your total earnings are less than the personal allowance and you do not pay any tax, you cannot get any tax relief.
If your employer pays you for taking a passenger, up to 5p per mile may be paid to you tax-free, anything over an allowance of 5p per mile is taxable and NIC-able. The passenger must also be an employee and the journey must be for business.
Unlike AMAP, if your employer pays you less than 5p per mile to carry a passenger, you cannot claim any tax relief on the difference.
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 approved payment;
- Add up the mileage allowance reimbursements you got in the tax year from your employer;
- If you had excess mileage allowance reimbursements from your employer you have to pay tax on the extra, or if they were less than the total approved payment you can claim mileage allowance relief.
Your employer checks to see if any NIC is due, by taking the following steps:
- They work out your business mileage for the tax year;
- They multiply your business miles by the AMAP rate to calculate the total approved payment;
- They add up the mileage allowance reimbursements they paid you in the tax year;
- If your employer paid more mileage allowance reimbursements to you than your business mileage at the AMAP rate, you have to pay NIC on the difference. Your employer makes an adjustment in the payroll and collects the NIC due from your wages.
You can see how to work out your own NIC in the example Janice.
You may incur other business travel expenses, such as travel fares, meals or overnight accommodation (known as subsistence), parking charges, congestion charges and road tolls.
If your employer pays for any of these directly, or you pay them and get reimbursed, this will not be treated as a taxable benefit on you in the first instance from 6 April 2016. Before 6 April 2016, unless your employer had a special arrangement with HM Revenue & Customs (HMRC), you would have received a form P11D at the end of the tax year, summarising the amount involved. You would then need to make a claim for tax relief to cancel out the tax liability that arose on the benefit.
If your employer does not repay you in full for your business travel you can deduct the difference from your earnings from the same employment to claim tax relief.
If you get a round sum travel allowance and the allowance exceeds your actual costs, you have to pay NIC on the difference between what you pay out yourself and the allowance. In the first instance, you are likely to pay tax and NIC on the allowance, but you can claim tax relief to the extent that you use the allowance for business travel expenses.
You normally get any relief in your Pay As You Earn (PAYE) code. You can also claim tax relief for your expenses on your tax return. If you do not need to fill in a return, you complete form P87 – Tax relief for expenses of employment.
Personal incidental expenses
Employees who stay away overnight while travelling on business are also entitled to tax free reimbursement of up to £5 per night in recognition of their personal incidental expenses. This covers items like private telephone calls, laundry and newspapers. If you employer pays this tax relief happens automatically and you do not have to claim it.
For travel in your own car, you should keep a log of business travel to include dates, destination, purpose of trip and how many business miles you travelled – this may involve you setting your mileage counter each journey and keeping a record.
For other business travel costs that you have to pay, you should keep a note of dates and trip details, and 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 who you paid, what you spent and the date.
Before 6 April 2016 when the expenses that your employer paid you, or reimbursed, were fully covered by your tax relief, your employer could ask HMRC to issue a 'dispensation'.
If your employer had a dispensation you would get tax relief automatically. Your tax code would not have shown the expense payments and you should not have included them on your tax return if you got one.
Chris makes a business trip to Edinburgh. His employer pays directly for his train ticket and overnight hotel costs, which total £75. The £75 is classed as additional income for Chris, but as far as Chris is concerned, the £75 is a business travel expense.
The employer has to include the £75 on Chris’ form P11D. Chris can make a claim for tax relief from HMRC in respect of the £75. So the tax relief cancels out the taxable benefit.
To save time and paperwork for Chris, his employer and HMRC, HMRC can issue a ‘dispensation’ to the employer in respect of business travel expenses. This means Chris gets tax relief automatically, and he can ignore his business travel expenses for tax purposes. They will not show on his form P11D.
Ravi uses his own car for business travel. In the tax year 2018/19 he travelled 12,000 miles on business. His employer pays him 45p per mile for all business mileage.
Ravi's business mileage was 12,000 miles
The AMAP rate for a car for the first 10,000 miles is 45p per mile and 25p per mile after that. Using that rate Ravi would have been paid 10,000 x 45p = £4,500 plus 2,000 x 25p = £500. Total £5,000 (a)
Ravi was actually paid 45p per mile so his total allowance from his employer was 12,000 x 45p = £5,4000 (b)
The difference between (a) and (b) is £400. Ravi has to pay tax on his profit of £400. It will go on a form P11D and most likely, Ravi will pay tax on it by having his PAYE tax code adjusted. Strictly Ravi should also pay NIC on this profit. See example Janice below.
Jock uses his own car for business travel. In the tax year 2018/19 he travelled 6,000 miles on business. His employer pays him 25p per mile for all business mileage.
Jock's business mileage was 6,000 miles
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)
Jock was actually paid 25p per mile so his total allowance from his employer was 6000 x 25p = £1,500 (b)
The difference between (a) and (b) is £1,200. Jock can claim MAR on £1,200.
If Jock is a basic rate taxpayer, this will save him £240 in tax.
Janice uses her own car for business travel. In the tax year 2018/19 she travelled 5,000 miles on business. Her employer pays Janice 50p per mile for all business mileage.
Janice's business mileage was 5,000 miles
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)
Janice was actually paid 50p per mile so her total allowance from her employer was 5000 x 50p = £2,500 (b)
The difference was £250. Janice has to pay NIC on £250. Her employer will make an adjustment in the payroll to collect it. Note that she will also have to pay tax on £250.
If Janice’s employer only pays her 30p per mile, as that is less than the AMAP rate, Janice does not need to pay any extra NIC in fact she could claim further tax relief as shown in example Jock above.
There is more information about tax relief for business mileage on the GOV.UK website.
You can find more information about tax relief for business travel and subsistence on GOV.UK website.
You may find the A to Z list of expenses and benefits on the GOV.UK website helpful.
You can find more information on how to claim tax relief for travel expenses, whether or not you complete a self assessment tax return, on the GOV.UK website.
If you do not complete a tax return, you can usually use form P87 to claim tax relief for expenses.