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If you have been a 9-to-5 employee in the past you may well have used your own car for business-related travel and been reimbursed by your employer or HMRC.
Now you’re self-employed, or the director of your own limited company, different rules apply. You can still claim back business mileage, but the way you do it, and the records you need to keep, can be a challenge for many new business owners.
Both company directors and employees can claim. If you hire an employee and either don’t pay them business mileage or you pay them less than the HMRC-approved rates you should let them know, as they can make a claim at the end of the tax year for the difference.
It’s usually best to claim back your mileage using the approved mileage allowance payments (AMAP) set by HMRC. This is 45p per mile up to the first 10,000 miles and then 25p per mile thereafter for car and van travel.
The AMAP rates include the general running costs of your car like maintenance and insurance.
It is important to keep a clear record of all the business journeys you make in your own car as evidence to prove what you have claimed back.
To ensure that your company can reimburse you as a director, or your employees, the following should be kept:
The easiest way to record your journeys is on a business mileage claim spreadsheet. Establish a system of regularly submitting a claim form and being paid back your costs from the company account, perhaps on a monthly basis.
An HMRC inspection will involve checking that your entire expense claim system is compliant. This means relevant receipts are attached to corresponding claim forms and the amounts of money leaving the company account match the totals claimed – so it’s important you keep all the relevant records whether it’s you or an employee claiming mileage.
There are differences in how you record VAT business expenses claims, depending on if your company is VAT registered or not.
If your company is not VAT registered then you need two different claim forms for claiming business expenses; one is just for mileage and the other for everything else. Your receipts will also need to be divided into these two sections. As a non-VAT registered company you can reclaim the full amount inclusive of VAT.
If you have a VAT registered business then you will need three different forms to make business expenses claims; one for mileage, one for expenses including VAT and one for expenses without VAT. You need three different categories because your bookkeeper needs to know whether claims are with or without VAT, even though you are claiming the gross amounts which comprise VAT as director. To be completely organised you need to sub-divide receipts into if they belong in ‘with VAT’ or ‘without VAT’ first, then attach them to the correct claim form.
VAT on fuel is an allowable claim, but it must be the actual VAT, not an equation based on the given rate. So the number for mileage becomes split between the non-VAT and VAT forms.
It is usually the way that, as a brand new business, you will have expenses to pay before you have earned any money for the company account. There are two possible options here regarding business expense claims:
Wait until the business has generated the necessary income and then claim
Introduce your own working capital into your business and then you can pay yourself back. It sounds a bit like robbing Peter to pay Paul but the input of capital shows in the company accounts as a loan from the director to the company
Paul Donohoe works for Tax Rebate Services. Think you might be owed business mileage? Contact them to help you claim your mileage tax rebate today.
You might avoid a fine if a close relative died shortly before the self assessment deadline, you've been seriously ill, or if you had major IT problems.