a company car is not as simple as it would seem. There is a tax
charge where, because of their employment, a car is made available
to and is available for private use by a director or an employee
earning £8,500 a year or more, or to a member of their family
or household (a ‘company car’).
There is a
further tax charge if free or subsidised fuel is provided for
private use in a company car.
However if you thought getting a company car was tricky then try
using your own car for work purposes. There are many rules and
regulations surrounding the use of a private vehicle.
Using your own vehicle for work - A fact sheet for employees
Many employees who use their own car, van, motor cycle or cycle
for work journeys are paid an allowance by their employer to cover
some or all of the costs. It can be in the form of a lump sum
or periodic payments, but is usually based on a rate per mile.
rules are met these payments can be made free of tax and National Insurance
are included in the scheme?
The only payments which are free of tax are those made to you personally
(not those made to someone else on your behalf) for expenses related
to your use of your own vehicle for work journeys within a limit fixed
by law which is based on your business mileage. All other payments related
to your own vehicle (including those made to someone else on your behalf)
are taxed as earnings in the normal way.
The rules for National
Insurance are slightly different, but your employer is responsible for
working out any amounts which you are entitled to receive without paying
If you are paid
an allowance for non-work journeys, the payments are subject to tax
and NICs in the usual way and nothing in this factsheet applies to those
are ‘work journeys’?
Work journeys are those which you have to make in the course of doing
your job. They include, for example, delivering goods or making calls
Any private journeys
unrelated to work are not included. Nor are journeys to and from your
usual place of work (commuting journeys), even if you call at a client’s
on the way (unless the journey is significantly different from your
usual commuting journey).
the tax-free amounts calculated?
The maximum you can receive tax-free for a tax year is your mileage
on work journeys multiplied by a set rate per mile. There are three
kinds of vehicle, and the rate depends on the kind you use - car or
van, motor cycle and cycle.
my actual expenses are more than the tax-free amount?
The tax-free amount is the maximum relief you are entitled to in any
tax year, so you are not entitled to any additional relief in that case,
whether for interest payments, business insurance, depreciation or any
other payments you may have to make on your car.
All such expenses
have been taken into account in determining the rates above.
I am paid more or less than the tax-free amount?
If you are paid more than the tax-free amount, the excess is taxable
as income. Your employer is responsible for advising HMRC of the amount
and tax is normally collected via your PAYE tax code. If you receive
a tax return, you are responsible for including the same amount on the
If you are paid
less than the tax-free amount, you are entitled to Mileage Allowance
Relief for the amount by which the payments you received fall short.
For example, if the maximum is 40p per mile for work journeys in your
car and your employer only pays you 36p per mile, you are entitled to
additional tax relief of 4p per mile.
payments made for passengers?
You can receive amounts free of both tax and NICs for carrying fellow
employees in a car or van on journeys which are also work journeys for
them. Only payments specifically for carrying passengers count and there
is no relief if you receive less, or nothing at all.
do I need to keep?
You will need to keep records of your work journeys (date, mileage,
details of journey). Your employer will need to know the mileage in
order to make any expenses payments to you. You will need them to substantiate
your right to any mileage allowance relief, whether or not you do this
via a tax return.
I use more than one vehicle in the year?
It does not matter how many vehicles of the same kind you use in the
year: you are treated as though you had used the same vehicle throughout.
vehicles of different kinds (a car and a motor cycle, for example) are
kept separate. All excess payments must be reported, even if you are
entitled to mileage allowance relief for another kind of vehicle.
I travel on business for more than one employment?
If you have two or more employments that are associated then your business
travel for both is added together to work out when you are no longer
entitled to the higher mileage rate for business mileage in a car or
van for that tax year.
associated if they are with the same employer, or with different employers
who are under the same control, for example, two different companies
in the same group of companies.
If the employments are not associated you are entitled to the higher
mileage rate for business mileage travelled in each employment as though
you did not hold the other employment.