Motoring Expenses UK: A Guide for Employers and Employees

Motoring expenses cover the costs employees incur when using a vehicle for business purposes. Understanding the rules around these expenses is crucial for both employers and employees to ensure proper reimbursement and compliance with HMRC tax regulations. The rules differ significantly depending on whether the vehicle is personally owned or company-owned.

Using an Employee’s Own Car for Business

When employees use their own vehicle (e.g., car, motorcycle, bicycle) for business travel, employers can pay them tax-free Mileage Allowance Payments (MAPs). These payments are designed to cover various costs associated with running the vehicle, including fuel, wear and tear, insurance, and maintenance.

It is essential for employees to keep detailed and accurate mileage records to show the specifics of all business mileage being claimed.

HMRC Approved Mileage Rates (MAPs):

• Cars & Vans:
  • First 10,000 miles per tax year: 45p per mile
  • Over 10,000 miles per tax year: 25p per mile
• Motorcycles: 24p per mile
• Bicycles: 20p per mile
• Passenger payments: An additional 5p per mile can be claimed by the driver for carrying fellow employees on business journeys.

For the most up-to-date information on mileage rates, always check the official HMRC guidance on Mileage Allowance Payments (MAPs).

Using a Company-Owned Vehicle for Business

When an employee uses a company-owned vehicle, the rules for fuel and other motoring expenses differ significantly. In these cases, the company typically covers the costs.

When a Company Can Claim Actual Fuel Expenses:

A company can claim actual fuel costs in specific scenarios, generally when the vehicle is used for genuine business purposes:

• Company-Owned Vehicles Used for Business: If an employee drives a company-owned vehicle for work-related travel, the company can reimburse the actual fuel costs tax-free. The employee must keep records of fuel expenses and business mileage to ensure compliance. HMRC’s Advisory Fuel Rates (AFRs) can also be used by employers to calculate tax-free reimbursement for fuel when an employee pays for fuel for a company car.
• Pool Cars: A pool car is a company vehicle shared by multiple employees and used only for business travel, with no significant private use. Since pool cars cannot be used for personal journeys, all fuel costs are fully deductible for the company and do not trigger a Benefit-in-Kind (BIK) tax charge for employees.
• Commercial Vehicles (Vans, Lorries, etc.): If a company owns vans, lorries, or other commercial vehicles, fuel costs are generally fully deductible, provided the vehicle is used solely for business. If an employee uses a company van for personal travel, it may trigger a Benefit-in-Kind (BIK) tax charge, though often at a lower rate than cars.
• Business Travel in a Company Car: If an employee uses a company car for business trips, they can claim or be reimbursed for actual fuel costs for those business journeys. However, if the employer provides free fuel for personal use in a company car, this becomes a significant taxable Benefit-in-Kind (BIK) for the employee.
• Leased Vehicles: If a company leases a vehicle for business purposes, it can claim fuel costs for business use. However, if the vehicle is also used for personal travel, the company must adjust claims accordingly or account for any BIK implications.

Fuel Reimbursement (for Company Cars):

• Employees must keep accurate records of all fuel expenses and the nature of the travel (business or personal).
• Employers can reimburse fuel costs tax-free, provided they are for business use only.
• As mentioned, if an employer provides free fuel for personal use of a company car, it is considered a taxable benefit for the employee.

Advisory Fuel Rates (AFRs):

HMRC sets Advisory Fuel Rates (AFRs) for company cars. These rates, which vary based on engine size and fuel type (petrol, diesel, LPG, electric), allow employers to reimburse employees for business mileage in company cars without triggering tax liabilities. They are updated quarterly and can be found on the HMRC website.

Other Relevant Considerations

Company Car Tax (Benefit-in-Kind - BIK)

Employees using a company car for personal use (even just commuting) are subject to Benefit-in-Kind (BIK) tax. This taxable benefit is calculated based on:

• The vehicle's CO₂ emissions (higher emissions lead to higher tax).
• The list price of the vehicle (P11D value).
• The fuel type.

A separate BIK charge applies if free fuel is provided for personal use.

Parking, Tolls, and Congestion Charges

Employees can claim reimbursement for or be paid directly for:

• Parking fees incurred for business-related purposes.
• Toll charges incurred during business journeys.
• Congestion charges (e.g., London Congestion Charge) if incurred for business travel.

These expenses are typically tax-free if incurred wholly and exclusively for business travel.

Leased Vehicles (Personal vs. Company)

If an employee leases a vehicle personally, they generally cannot claim lease payments as a business expense, even if they use the car for work. However, if the employer leases the vehicle, the lease costs may be tax-deductible for the company, subject to various rules.

Examples of Motoring Expense Claims

Example 1: Employee Using Their Own Car

An employee drives 200 miles for a business trip in their personal car. They can claim:

• 200 miles × 45p per mile = £90 reimbursement (assuming this is within the first 10,000 miles for the tax year).
• They cannot claim separately for fuel, insurance, or maintenance, nor can they claim actual fuel based on receipts.

Example 2: Company Car Fuel Claim

An employee drives a company-owned vehicle for business purposes. They can be reimbursed for:

• Actual fuel costs based on receipts for business mileage.
• Alternatively, the employer can reimburse using HMRC's Advisory Fuel Rates (AFRs), which are updated quarterly.

Example 3: Parking & Toll Charges

An employee attends a client meeting (business travel) and pays:

• £10 parking fee
• £5 toll charge

Both expenses are reimbursable tax-free as they were incurred wholly and exclusively for business purposes.

Example 4: Personal Use of Company Car

An employee uses a company car for both business and personal trips. Since personal use (even commuting) is not business-related, the employee will have to pay tax on the Benefit-in-Kind (BIK) value of the company car. If the employer also provides fuel for personal use, a separate BIK charge will apply for the fuel.

Common Mistakes to Avoid

Mistake 1: Claiming Fuel Separately for Personal Cars

Employees often mistakenly try to claim fuel costs separately when using their own car for business. However, the approved mileage rate already covers fuel and all other running costs, so separate fuel claims are not permitted.

Mistake 2: Misusing Company Fuel Cards

Using a company fuel card for personal trips (including commuting) is a common error. This practice creates a taxable Benefit-in-Kind for the employee, which must be reported to HMRC, and can lead to significant tax charges.

Mistake 3: Incorrectly Claiming Parking & Tolls

Only business-related parking and toll charges are reimbursable tax-free. Personal expenses, such as parking near home or tolls for personal journeys, are not allowable claims.

Mistake 4: Not Keeping Proper Records

A lack of detailed records (e.g., mileage logs for business journeys, receipts for fuel/parking/tolls) is a frequent mistake. Employees and employers must keep accurate records to substantiate claims and ensure compliance with HMRC regulations.

**Note:** This information is a general guide to UK motoring expenses and their tax implications. Tax regulations, mileage rates, and Advisory Fuel Rates are complex and can change. Always seek professional accounting or tax advice tailored to your specific circumstances to ensure full compliance with HMRC guidelines.