TT66: Tax Return Update 2

Topical Tips 65 dealt with changes to the Income Tax Return situation for 2004/05. This issue deals with some advantages you might be able to claim from HMRC!

Approved mileage allowances

An employer can reimburse an employee for business travel in the employee’s own vehicle at approved mileage rates. As well as not having to report these payments on form P11D they are tax-free provided they remain below certain limits:

  • Cars & vans – 40p per mile for the first 10,000 business miles travelled in the tax year
  • 25p per mile thereafter
  • 5p supplement per mile for every passenger carried on the business trip
  • Motorcycles – 24p per mile
  • Cycles – 20p per mile

If you pay more than these rates then the excess will be taxable on the employee and both employee and employer will pay national insurance (NIC) on the benefit provided.

If you reimburse only fuel costs for business mileage to drivers of company cars then there is an equivalent HMRC approved scale of tax-free rates. In both cases a full log of all business mileage must be kept. See right for further potential relief.
Home internet connections
It is sometimes sensible to allow employees to work from home via internet connections. There are, however, some income tax and NIC considerations.

If an employer reimburses the employee for their home internet service then this is taxable and subject to NIC. The employee must make a counterclaim on their tax return for the business element. Evidence such as a record of private and business usage for a representative period will be required.

If the employer can get the internet connection in their name rather than that of the employee, then they can reclaim the VAT and the employee is only taxed on the benefit (inclusive of VAT) and pays no NIC. The amount should be put on the form P11D and the employer will pay Class 1A NIC. See right for possible relief from this.

Barnes Roffe Topical Tips

  • If an employee receives less than rates shown then they can claim tax relief on the difference e.g. if the company only pays 20p per mile then the employee can, as well as claiming the money from the employer, claim a further (40p-20p) x “the number of business miles” against his or her taxable income for up to the first 10,000 business miles and (25p-20p) per mile for the amount claimed over 10,000 business miles.
  • As a concession HMRC recognises that employers might contract for an internet connection for employees to use for their duties of employment. They will accept that no taxable benefit arises where all the following conditions are met:
    • the employee has significant duties of employment to undertake from home
    • private usage of the internet connection is insignificant
    • any private usage is at no extra cost
  • There are other tax-free benefits that can be provided to enhance employees’ remuneration packages. See Topical Tips 59 for tax-free home computers for staff and Topical Tips 58 for tax-free childcare for staff.
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