TT117: Tax Free Business Milage Rating Update

June 22, 2008

In Topical Tips 107 we advised on the new rates an employee can claim for business mileage when they pay for all the fuel on a company car. That was from 1 January 2008, but now the rates have changed again!

With effect from 1 July 2008 H M Revenue & Customs (HMRC) has increased the amounts that can be claimed tax-free. The revised rates are as follows;

Engine Size Petrol Diesel LPG
1,400cc or less 12p 13p 7p
1,401 to 2,000cc 15p 13p 9p
Over 2,000cc 21p 17p 13p

VAT reclaim

In an interesting move, HMRC has announced that given the very rapid rise in fuel prices, they are happy to allow employers to use the new, increased rates from 1 June 2008 where they are able to do so.

And remember, in order for you to claim back the VAT element your staff should follow the guidance in Topical Tips 77.

And back to the future

Concerns have been raised with HMRC regarding the consequent administrative difficulties if the tax-free rates are subject to frequent changes as a result of petrol price fluctuations. HMRC has confirmed that the rates will be reviewed for 1 January and 1 July each year and in the event of a variation of fuel prices of greater than 5% when HMRC considers the change to be sustained.

Barnes Roffe Topical Tips:

  • If you have a specific vehicle that substantially differs from the above, then it is possible to ask your local PAYE office for their agreement to using a different rate for that vehicle.
  • You must keep detailed records of amounts claimed (date, mileage, engine size, rates used, reason for the journey) to satisfy any HMRC visit.
  • This treatment is extended to employers with dispensations for fuel rates that are linked to the advisory fuel rates. Where a dispensation is in place this will need to be reviewed/adjusted.
  • This does not alter the 40p/25p rate payable when staff use their own cars for company business.
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