Tax Tips – Business Question:
I am the director of a new small limited company and I am buying a car personally and using it for business and private usage. The business will be paying the fuel once it can afford to – in about 6 months’ time. Up until then, can I claim the 45p a mile? Can I also write off any of the cost of the car or insurance as it will be mainly business use?
If a company makes payments to employees above a certain amount, they will be required to report them to HM Revenue and Customs (HMRC) and deduct and pay tax. Mileage Allowance Payments (MAPs) are what you pay your employee for using their own vehicle for business journeys. Companies are allowed to pay employees a certain amount of MAPs each year without having to report them to HMRC. This is called an ‘approved amount’. To calculate the ‘approved amount’, multiply your employee’s business travel miles for the year by the rate per mile for their vehicle.
This mileage allowance payment of 45p per mile, 25p after 10,000 miles, is designed to cover not only fuel costs but also the cost of the car itself and the other running costs such as insurance and repairs so there is no need to account for anything else. If the company is not reimbursing you, you will be able to claim the tax relief on the 45p per mile not paid by the company. When the company starts paying the allowance, there are no further tax implications. If the company just pays for the fuel, there are further issues with reporting a benefit in kind or paying for the private fuel and claiming part of the mileage allowance.
To claim all of the running expenses in a company, the car needs to be held in the company’s name. You need to carefully consider if putting the car in the company is the most optimum place to have it. Firstly, the mileage allowance payments can often result in a larger deduction for the company, which reduces its profits and therefore its corporation tax bill. But more significantly, private use of a company asset will lead to tax charges on you personally. Unless the private use is major, the personal tax consequences can often outweigh the benefit of owning the car through the company.
On a slightly separate matter, if the director carries another employee in their own car on a business journey, the company can pay them passenger payments of up to 5p per mile tax-free. The company doesn’t have to report this to HM Revenue and Customs (HMRC) or deduct and pay National Insurance on the payments either.