Business Mileage 2020 and what you should claim

As all business owners know, business mileage can be reclaimed: but the rates applicable do vary, depending on who owns the car being used – you or your employer.

And if it is a company-owned vehicle then you also need to consider whether it is a petrol, hybrid or pure electric car.

The UK government’s decision – announced in November – to bring forward the date when it will ban the sale of new petrol vehicles to 2030, (an entire decade ahead of the previously published date) will undoubtedly mean that thousands of businesses will soon join those already using hybrid or electric vehicles. For now, that will add a layer of complexity to their allowances, as electricity is not regarded as a fuel under UK Tax law.

So let's review the regulations that apply to hybrid and electric company cars first, as things have changed since I last wrote about this.

Company Cars

For company-owned hybrid cars things are relatively straightforward. Where the cost of fuel was incurred personally, the normal diesel / petrol Advisory Fuel Rates (AFRs) can be used to reimburse the employee for business travel, whether the fuel used is petrol, diesel or electricity.

But pure electric cars remain – for now – excluded. If you have a pure electric car as a company car then you can only claim 4p per mile for every business mile travelled without any tax consequences.

Personal cars

Here it is easier. With personally owned cars, Approved Mileage Allowance Payments (AMAPs) can apply in the same way for electric cars as with petrol or diesel cars.

Employees can therefore claim 45p per mile for the first 10,000 business miles in the financial year, and 25p per mile thereafter. But note:

• Any reimbursement for business mileage is tax and NIC free only provided it’s no higher than the above AMAP rates. Reimbursements above AMAP are taxable and must be reported to HMRC.
• If the employer reimburses at a rate lower than the AMAP rates, the employee can claim tax relief from HMRC on the difference.

It’s also worth noting here that an employee may receive a taxable benefit if their employer:

• Pays for a vehicle charging point to be installed at the employee’s home.
• Provides a charge card to allow access to commercial or local authority vehicle-charging points.
• Pays to lease a battery for the employee’s car.

But as HMRC does not consider electricity to be a fuel, there is no benefit-in-kind charge for employees charging their own cars at a workplace charging station. A win!

You must maintain adequate records to prove that the correct amount has been paid in any mileage allowance payment.

If you decide not to reimburse employees for business mileage in an electric car then your employee should be entitled to a deduction for the actual electricity cost of business miles travelled. The difficulty here is in identifying the cost of the electricity used during business miles travelled.

Until parity for all vehicles is introduced, do give us a call to discuss the approach you plan to take for any electric vehicles used on business trips.