Tax Relief on mileage

markh · PayPerShop Newbie Joined: 22 Jan 2008 Posts: 17

Good morning everyone.

I just wanted to find out if anyone gives tax relief for mileage claims back through payroll at the time of the claim?

We pay a rate of 30p per mile for some staff so they are entitled to claim back 10p per mile in tax relief and rather than completing a p87 at year end, does anyone give the relief back through their payroll system at the point the claim was input.

I look forward to receiving your replies

Regards

Mark

Ian Congreave · Posted: Tue Jul 01, 2008 11:35 am Post subject: Tax relief on mileage payments

Mark, this is a curious idea. The tax liabilities on mileage allowance payments to employees using their own cars is an annual calculation and any tax liabilities or tax relief situations can only be determined when working out the P11D reporting figures. So you can't give tax relief at the time the allowance is paid.

If you wish to be helpful and avoid employees having to complete P87s to claim the relief, you can talk to your tax office about the Mileage Allowance Relief Optional Reporting Scheme (MARORS). This involves reporting additional information so that HMRC can calculate and provide the tax relief automatically.
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markh · PayPerShop Newbie Joined: 22 Jan 2008 Posts: 17

Ian

Many thanks for the response, i'm sure i've seen some payroll systems do this though.

Just playing devil's advocate for a minute, if you're saying mileage allowance payments is an annual calculation, why do some companies take the tax & ni periodically on the profit over 40p but not the tax relief?

Ian Congreave · Posted: Tue Jul 01, 2008 12:10 pm Post subject: Tax relief on mileage payments

Mark, The situation with NICs is different from tax - it has to be done on an earnings period basis - so any excess over 40p per mile in the earnings period has to be added to gross pay in the period, subject to NICs only.

I can imagine that some employers will deduct tax at the same time. There are two potential problems in doing that. First, it does not remove the P11D reporting requirement, so they would still have to calculate the liability for the year, report that and then show the amount on which tax had already been paid. Second, the tax due for the year could be less than that collected each period throughout the year, so more tax could be deducted than is necessary. For example, the 40p applies for NICs irrespective of mileage, whereas there is a 25p rate for annual mileage over 10,000 miles.

So, correctly, tax should be handled annually, and NICs should be handled on a period by period basis.
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Ian Congreave, PayPerShop owner

PayPerShop provides a free weekly UK payroll news service - http://www.paypershop.com/latestnews.html

Ian Whyteside · Posted: Tue Jul 01, 2008 12:12 pm Post subject: Tax relief on mileage

Mark,

I too am curious that an employer would give the relief in this way but I can see the advantages, it makes things a lot easier for everyone. I suspect that HMRC will have an issue in that there is a misalignment between the amount of the allowance at 40p and the amount paid as a comparison.

Given that most employees are paid such allowances one month in arrears the payments made to someone for a tax year actually cover their mileage from 1 March in one year to 28/29 February the following whereas the tax free allowance is the total mileage travelled in the tax year. This discrepancy means a pay period by pay period calculation is never going to be accurate enough.

I am aware though that HMRC encourages employers to calculate any profit element in year and assess income tax accordingly. Again this is adminstratively good as it avoids the P11D at year end, or does it?

I still feel that this method falls foul of the true calculation and from my knowledge a lot of employers do the pay period calculation but then have to do an annual reconciliation as well. Personally I prefer to do the job once.

Ian Whyteside