I am just about to start self employment which will involve me in driving for business use. I've just researched the mileage allowance for tax purposes and this is £0.40 per mile. This figure was set in "002/2003 when petrol was £0.40 to £0.45 a litre. Fuel prices have tripled - not sure about car prices (including depreciation), car insurance, car tax, costs of servicing etc, but probably they have at least doubled.
I'm looking at the actual costs and it seems hardly worth the effort to transfer from being unemployed to self employed. I do not receive any benefits, but the lack of a reasonable mileage allowance which has not in any way kept near to inflation rises seems to end up, for me, as far less than the minimum wage. Therefore it is likely that I shall not take up the opportunity and contribute to income tax and NI.
I have e-mailed my MP and asked for this to be raised.
I'm guessing that there are a number of A4A people who also are self employed and have similar issues. If you contact your local MP then perhaps we can raise the profile of how successive governments are not supporting the self employed with the use of vehicles for business use.
I don't think that I've got my facts wrong, but if you have anything further to shed on the mileage allowance then that would be great.
If I've got it right then perhaps those of you who are not in the same postion could spare a couple of minutes to e-mail your MP over this.
Thanks for reading this.
Regards
Bluecar
Cover enough miles and it's worth it. The mileage allowance is not intended to pay all the running costs of a low mileage vehicle. 30,000 miles a year gets you £12,000 which costs £3-4,000 for fuel. If you can't run a car with the remaining £8-9,000 then you're running too high end a car for business use.
If you are doing lesser mileage then consider apportioning the actual costs of the vehicle instead of using the mileage allowance.
and you can write down the capital cost of the vehicle. Also take into account what you are going to be charging your customers. I build in local travel costs in my day rate and stipulate travel outside of M25 will be at X rate or will use train/plane instead.
Perhaps thinking wider than the IR mileage allowance would help?
I just charge my clients more money.
Funily enough I looked into this just the other day.
The maximum allowance HMRC will allow is like you say 40p/mile, and has been for a number of years. Turns out Newbury Town Council pay councillors 60p per mile, and I asked a town councillor who had recently claimed £200 for a trip to Lincoln whether he was going to declare the profit on his tax return, and whether he thought it was morally right to make a profit from publc funds on his milage allowance. He blathered a bit, and then called me vaxatious. Vexatious, moi?
Anywho, cars are more ecconomical now so it's not totally unreasonable that the allowance hasn't changed. Do the math: My volvo V50 does about 55 miles to the galon on a run, so call that 10p per mile. Now, say I do 12,000 miles each year. My insurance is around £300, so 2.5p per mile. It depreciates by something like £2000 per year, so that's another 16.5p per mile. It costs about £600 a year to tax and service, so that's another 5p per mile. So all up my motoring costs me 34p per mile and while that figure will vary depending on the motorist's circumstances it's a reasonably representative figure, so if HMRC allow you to be reimbursed 40p per mile that pretty well completely reimburses the average motorist for the whole cost of the journey, and if it doesn't it's because you've made some lifestyle choices and it's not unreasonable that you pay for that yourself.
No reason why your employer can't reimburse you at a higher rate than 40p per mile, but you'd have to declare the excess on your tax return.
If you already own and run a car, you will not have to pay more road tax, insurance will only be a little extra, depreciation and service a bit more, so the actual `extra` miles will be a lot less than 40p/mile.
Just a correction to djbrenton post, if you do more than 10,000 miles year the rate drops to 25p/mile over the 10,000
If you go to the HMRC.gov.uk site and look at the business Income manual, specifically BIM47700 you will see the following
"The following guidance explains when self-employed taxpayers can use mileage rates to compute their vehicle expenses. They can use this method of calculating relief as an alternative to keeping detailed records of actual expenditure.
This method is intended to make things simpler for small businesses. No one has to use it. Taxpayers who do not use it should deduct the actual amount they spend. In either case the journey must be made wholly and exclusively for business purposes.
•This page sets out the way the scheme works in general.
•Features of the scheme that apply from 6 April 2002 onwards are set out in BIM47702."
This means that if you keep good records of vehicle mileage you can apportion the vehicle costs between private and business. and probably claim capital allowances for the busines proportion.
Bill
If you are using a family car, for your business, you can offset 80 % of running costs. If the car is for business use only, then you can offset 100% of the running costs. :)
Nope, you can only claim usage of the car in proprotion to the amount it is used wholely and exclusively for the purpose of the business.
If the total mileage is 10,000 and you have only used the car for the purpose of the busines for 1000 miles and you can prove that mileage then 10% of all costs relating to the upkeep of the car during that period can be claimed. Capital allowances are similarly limited. 80% is not the minimum.
Bill
Top post Bill.
Thank you for your comments.
I was aware that there are two ways of claiming tax relief for the cost of running a car for business purposes. The simplest method is to use the mileage allowance. The mileage allowance has remained static, at £0.40, since 2002. Obviously we can debate whether or not this was the right amount in 2002.
If you take my current situation, I was in a position to purchase a new family car c£19k in May 2010. Probaly this will have depriciated by around £4k. My current mileage is 4374 so over a year it equates to 7500 miles - that's £0.53 per mile. Petrol works out at £0.15 per mile; tax, insurance and servicing at around £900 is a further £0.12 per mile. Thus a running cost of £0.80.
I would prefer to use a simple, but realistic mileage allowance, which keeps the paper work to a minimum. For example using the AA running costs:
www.theaa.com/allaboutcars/advice/advice_rcosts_petrol_table.jsp
This would probably put the allowance, for me, at around the same value of £0.81 per mile
Bluecar
Or you could run a cheaper car. Or claim actuals.
What miles to the gallon are you getting from your new car?
It's a 2 litre petrol. Obviously it depends on the journey. Long trips (which I do very few of) I can get 40 mpg. Short journeys less than 30. Current reading is 33.6 mpg. Yes, I could run a cheaper car, but I don't really want to. Yes I can claim actual costs, but I would prefer a simpler method. The existing mileage allowance is out of date. and it seems to me the only people that would use it would be those people whose actual costs work out a less than 40p/mile. I'm just changing my mind as I type. The fairest way is to scrap the mileage allowance altogether and just operate the full cost So perhaps that's the way forward?
Bluecar
To go back to a more common business mileage of 30,000. As has been pointed out, 10,000 at 40p and 20,000 at 25p is £9,000 a year. £3,500 diesel and £900 other costs leaves £4,600 a year for a lease or towards purchase costs. That's £13,800 over three years with a residual car value of say £6,000. Looks about right at 30,000 miles.
Mileage allowance isn't really intended to cover the full cost of car ownership unless the business need is at a relatively high mileage. How much of a £19,000 car should work out tax free if, for example, you only do 1,000 miles a year on business? When the top rate of 40p was set, the civil service rate for using your own car was 28p at lower than executive level.
I've just read that there's a 20p mileage rate for bikes, which is pretty good! Read it in an artcle about York M.P. Hugh Bayley claiming £4.80 for cycling round his constituency! ::)
Apologies if I have led you to believe that I expect the full cost of the vehicle to be covered. This is not the case. Based on my example I would apportion 1000 of the 7500 miles to give a figure of £820.
Bluecar