can claim travel costs incurred for business purposes. If travel costs are incurred for business as well as personal then the costs need to be apportioned and only the business portion of it can be deducted as an expense. For the expense to allowable, it must be for travel to a ‘temporary workplace’. A ‘temporary workplace’ is one that is for a limited duration of time (less than 24 months). It is important to note that a ‘temporary workplace’ is no longer considered temporary from the day the employee/contractor expects to work for the same employer/client for longer than 24 months. A contractor or employee therefore accepting a 30 month contract will not be able to deduct any mileage or travel expenses as this will not be a “temporary workplace” from day one.
Petrol / Fuel – please note that you should not claim for petrol, you should rather claim mileage as this is more advantageous for you; and you can’t claim both as that would be double counting.
Mileage – a director using his or her own car for business travel can claim £0.45 per business mile for the first 10,000 miles and £0.25 for each business mile above 10,000 miles as an expense per tax year. If the director uses a motorcycle for business travel the deduction is £0.24 for all business miles in a tax year. The 45p and 25p covers all your business related travel costs, Petrol, Insurance on the car, maintenance etc. so you can’t claim these expenses on top of the £0.45 and £0.25 allowance.
Mileage allowance vs free fuel: A frequently asked question is: would I be better off giving up the company car and instead claiming mileage allowance for the business travel I do in a car that I buy myself? The rule of thumb answer to this is that you are more likely to be better off if your annual business mileage is high.
Another frequent question is: would I be better off having my employer provide me with fuel for private journeys, free of charge, and paying tax on the benefit, or bearing the cost myself? In this case, the rule of thumb answer is that you are only likely to be better off taking the free fuel if your annual private mileage is high. However the cost to the employer of providing this benefit is likely to be high.
Every case should be judged on its own merits, and considered from both the employee’s and the employer’s point of view. While cost is an important factor, it is not the only one. As an employee, using a company car removes the need to worry about bills or the cost of replacement. As an employer, running company cars allows you to retain control over what may, for your business, be key operating assets.
Fuel for private travel: If your employer provides fuel for any private travel, there is a taxable benefit, calculated by applying the same percentage used to calculate the car benefit to the fuel benefit charge multiplier of £23,400. You can avoid the car fuel charge either by paying for all fuel yourself and claiming the cost of fuel for business journeys at HMRC’s fuel only advisory rates, or by reimbursing your employer for fuel used privately using the same rates.
Considering a company van: Many employers and employees have benefited from significant savings by replacing company cars with employee-owned cars part-funded by mileage allowances at HMRC rates. Where a company vehicle is still appropriate, a van rather than a car is worth considering. Unrestricted use of a company van results in a taxable benefit of £3,350, with a further £633 benefit if free fuel is also provided. Limiting the employee’s private use to only home to work travel could reduce both figures to zero.
Case study: Olivia is an owner-director. For her company car she had chosen one with a list price of £25,785. The car runs on petrol and emits CO, at a rate of 148g/km. Olivia’s company is successful and she pays tax at 45%. Her 2018/19 tax bill on the car is therefore £3,481 (£25,785 x 30% x 45%). Olivia’s company will pay Class 1A NICs of £1,067 (£25,785 x 30% x 13.8%). The company also pays for all of Olivia’s petrol. Because she does not reimburse the cost of fuel for private journeys, she will pay tax of £3,159 (£23,400 x 30% x 45%) and the company will pay Class 1A NICs of £969 (£23,400 x 30% x 13.8%). The total tax and NIC cost is £8,676. Furthermore, as well as paying for the fuel, the company will also need to pay a gross amount of over £12,528 to provide Olivia with the funds to pay the tax. When employers’ national insurance is taken into account, the gross cost before tax relief of funding Olivia’s tax and the NIC liabilities will be over £14,257.
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Parking – parking fees while on business travel is a deductible expense. Again any fee that relates to personal use is not deductible.
Flights – business flights are deductible business expenses as long it was taken solely for business reasons.
Example 1: You are a contractor and you need to fly at your own cost to Australia to do some work for clients based in Australia. This flight was taken wholly, exclusively and necessarily for business purposes and it is therefore a deductible expense.
Example 2: You are flying to Australia to attend a family wedding and while you are there you will be doing work that you would have done if you were in the UK. If you ask yourself was this flight wholly, exclusively and necessarily taken for business purposes then the answer is clearly no, so you can’t deduct this flight as an expense as it was not taken solely for business purposes even though you will be working while you in Australia.
Taxi Fares – Taxi fare is a deductible business expense only if it was wholly, exclusively and necessarily for business purposes.
What are business journeys? You can only get tax relief on the cost of business journeys. These are when, as part of your job:
- you have to travel from one workplace to another; this includes travelling between your main permanent workplace and a temporary workplace
- you have got to travel to or from a certain workplace because your job requires you to
Business journeys DO NOT include:
- ordinary commuting when you travel between your home (or anywhere that is not a workplace) and a place which counts as a permanent workplace
- private journeys which have nothing to do with your job