Mileage Rates for Contractors
Contractors can claim mileage allowance payments towards their business mileage expenses. Contractors usually operate through their own limited company, or as an employee of an umbrella company. If they operate through their own limited company, they are typically both director and employee of that company.
What mileage rate can contractors claim?
The standard mileage rate applies to contractors. They can claim 45ppm for the first 10,000 miles travelled by car or van. They can also claim 25 ppm for each additional mile over 10,000 miles. If the contractor is travelling by motorcycle, the mileage rate is 24ppm; for using a bicycle, the mileage rate is 20ppm.
How can I claim my mileage expenses?
The simplest way to claim for business mileage expenses is to claim the approved mileage rate (“Approved Mileage Allowance Payment”) through your limited company.
This has the following advantages:
- You are receiving the maximum tax free mileage rate and it is not liable to income tax;
- You do not need to record your mileage claim on your personal tax return;
- The company does not record the expense on your P11D;
- The company can offset the mileage payments against corporation tax.
To claim mileage expenses through your limited company, it is necessary to keep a log of all business journeys. You also need to be aware that the "24-month" applies.
Can I pay more than the AMAP rate?
If you decide your limited company will pay you more than the AMAP rate, then national insurance (both employer's and employee's) will need deducting from the payments. You will also need to record the excess payments on the P11D.
The excess payments should be recorded on your tax return, and the excess is subject to income tax at your highest rate.
Therefore, it is not tax efficient to pay more than the AMAP rate.
Should I pay less than the AMAP rate?
Paying less than the AMAP rate will reduce the costs to your company, though you will receive less money to cover your car running costs. For example, if your company pays you 15 ppm (pence per mile) instead of 45 ppm, you can claim the shortfall of 30 ppm on your tax return.
However, the most tax efficient way to take money from your company is for your company to pay the full AMAP rate.
What is the 24-month rule?
A contractor is typically based at home, and travels to a client's office to work. This does not count as a commute because the client's office is only a temporary workplace.
However, the 24-month rule states a workplace ceases to be temporary once it is clear that you will work at least 40% of your working time at that workplace for more than 24 months. For example, if you get a 6 month contract extension after 18 months then you cannot claim for travel to the workplace because it is no longer temporary.
What records must the company keep?
HMRC expects the employer to be able to identify the travel expenses they pay to employees. If the employer cannot provide the paperwork to support payment of mileage expenses, then income tax and national insurance is due on the mileage payments. Any employee wishing to claim should keep a mileage log.
The mileage expense records can be kept on paper or electronically and must be kept for at least three years after the tax year to which they apply. Use Tripcatcher mileage log to log your business mileage quickly and easily: just click the sign up link at the top of the screen.
What if I work for more than one client?
Many organisations use different mileage rates, which can become confusing. The mileage expenses for each organisation need to be calculated separately.
Using Tripcatcher mileage log, record the client that each journey is made for. Tripcatcher will produce mileage reports for you, one for each client, so you can print them off to support your expense claim.
At the end of the year you can run a mileage report to determine your tax-free mileage claim entitlement for the year.
