How to tax mileage payments for employees (480: Chapter 16)
How to tax mileage allowance payments and passenger payments for employee business travel.
Mileage Allowance Payments (MAPs)
16.1
Section 229(2)
MAPs are defined as ‘amounts, other than passenger payments, paid to an employee for expenses related to the employee’s use of such a vehicle for business travel’ see paragraph 16.10 about passenger payments; ‘such a vehicle’ refers to any car, van, motorcycle or cycle.
Remember that:
- the payment must be made direct to the employee, not to someone else for the employee’s benefit
- only MAPs can be paid tax-free as Approved Mileage Allowance Payments (AMAPs) in the way described below
Approved Mileage Allowance Payments (AMAPs)
16.2
Sections 229(3) and 230
Employees using their own cars, vans (including electric cars and vans), motorcycles or cycles for business travel can get a tax-free amount (the approved amount for MAPs) instead of being taxable on what they got and having to get a deduction for expenses incurred.
Section 359
Actual costs of business journeys made in the employee’s private car cannot be claimed as a deduction by the employee as the legislation specifically prevents this where mileage allowance payments are made to that employee.
16.3
AMAPs cover any general or mileage-related expenses in relation to the car itself (such as fuel, servicing, tyres, road fund licence, insurance and depreciation), plus interest on any loan to buy the vehicle. No additional deduction is available for expenses of that type.
They do not cover other expenses specific to the particular journey (such as parking charges, road tolls or accommodation) and the normal rules for deductions apply to expenses of this type.
16.4
Section 230(2)
The approved amount (the maximum that can be paid tax-free) is calculated as the number of miles of business travel by the employee (other than as a passenger, and whether or not they’re reimbursed for them) multiplied by a rate expressed in pence per mile. The tax-free amount therefore depends only on business miles travelled and is not related to the actual expenses incurred.
16.5
There are 3 kinds of vehicles under the AMAPs scheme:
- cars or vans (including those powered by electricity)
- motorcycles
- cycles
Each kind of vehicle is dealt with separately, though different vehicles of the same kind are dealt with as though they were the same vehicle. The rate in pence per mile for each kind of vehicle is in Appendix 3.
16.6
Where an employee receives payments from 2 or more associated employments, all business travel is treated as though it related to a single employment when calculating whether the 10,000-mile limit for cars or vans has been reached.
16.7
If you pay more than the approved amount, the excess should be returned on form P11D, or payrolled if you’ve registered to payroll. If you pay the exact amount, do not tell HMRC at all, whether on forms P11D, or otherwise. If you pay less (or nothing at all), the employee is entitled to a deduction for the shortfall as Mileage Allowance Relief – see paragraph 16.9.
16.8
There’s a similar scheme for National Insurance contributions, but the rules and rates for National Insurance contributions are slightly different – see the latest edition of CWG2 Employer further guide to PAYE and National Insurance contributions for details.
Mileage Allowance Relief (MAR)
16.9
Sections 231 and 232
If an employee is paid less than the approved amount, they’re allowed a deduction for the shortfall. Employers can agree with HMRC to make separate optional reports of negative amounts under a scheme called Mileage Allowance Relief Optional Reporting Scheme (MARORS) which only caters for negative amounts. Contact HMRC if you want to enter this scheme.
Passenger payments
16.10
Section 233
There’s an additional exemption from tax for payments to employees travelling on business journeys because they’re carrying other employees, for whom the journeys are also business travel, as passengers. The payments must be made specifically because passengers are being carried and be in addition to MAPs or the travel itself.
16.11
Passenger payments can be paid to employees using:
- their own car or van (and so eligible for AMAPs)
- a company vehicle for which they’re chargeable to either car or van benefit (and so not eligible for AMAPs)
16.12
Section 234
The maximum that can be paid tax-free is calculated as the number of business miles for which a passenger is carried multiplied by a rate expressed in pence per mile. The rate is in Appendix 3.
Miles for which no passenger payments are made are excluded from the calculation.
16.13
Payments can be made for each passenger on the same journey.
16.14
If you pay more than the maximum amount, the excess should be returned on form P11D, or payrolled if you’ve registered to payroll. If you pay the exact amount, do not notify HMRC at all, whether on form P11D or otherwise.
If you pay less (or nothing at all), there’s no equivalent to MAR – the employee is not allowed any deduction for the shortfall.
Record keeping
16.15
Although payments within the above limits are exempt from tax, meaning that no report needs to be made to HMRC about them, employers should make sure that adequate records are kept to demonstrate that payments satisfy the conditions for exemption. Records should relate to miles travelled and not to actual expenses incurred (see paragraph 16.4).
Optional remuneration arrangements
16.16
Section 230A
From 6 April 2017 where mileage payments are given as part of optional remuneration arrangements the payments are not exempt from tax and the employee is taxable on the amount of salary or cash pay foregone. There’s further guidance about optional remuneration arrangements in Appendix 12.