Mileage rates with a Car Allowance

Postby Dave123 on Wed Sep 07, 2005 1:26 pm

I've just found this excellent forum but despite searching through the archives I haven't found anybody asking this question in quite the way it affects me.

I've just started a new job and I'm fortunate enough to receive a car allowance in lieu of a company car (there was no option, it's just company policy).

My contract states that my mileage expenses will be reimbursed at current Inland Revenue rates.

My first expenses claim has just been submitted. I'm claiming approx 600 business miles a week at 40ppm. (I'm keeping careful track of mileage as I know the rate changes over 10000 miles to 25ppm).

The claim has been rebuffed by my employer as they claim that since I'm in receipt of a car allowance the applicable mileage rate is 12ppm. At today's prices this doesn't even cover my fuel.

From all the research I've done I believe I'm right with respect to the allowed rates by the Inland revenue. The car is my own, I've had it for years so I believe that despite the car allowance (taxed as salary) I'm entitled to claim rates for a private car for business use.

This all brings me to my questions:

Accepting that my company may change the wording of their policy so that they pay 12ppm instead of current allowable rates, can I can claim back the difference on my tax return? If so how do I do this, will I receive all of the difference (likely to be over £4000 per year) and just as importantly when am I likely to see the cash?

I'd really appreciate any help I receive here, Thank you in advance

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Postby deanshepherd on Wed Sep 07, 2005 2:24 pm

Take a look at this thread:

Basically, car allowance is just additional salary and has no bearing on the tax position.

You can claim tax relief on the difference between the IR rates and what you have been paid. Note: this reduces your taxable income not your tax liability by the shortfall.

Dean Shepherd
MMI Accountancy
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Postby King_Maker on Thu Sep 08, 2005 12:38 am

How much is your Car Allowance?

What is your estimated annual business mileage?
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Postby Dave123 on Thu Sep 08, 2005 12:12 pm

car allowance is £3.5K gross pa (about £195 net pm)
business mileage likely to be 25000 pa

Dean's reply is very useful, thank you Dean. If I'm understanding correctly my 2005/2006 tax return should result in an additional tax allowance for 2006/2007 that would give me significantly higher tax code, allowing me to earn more before I start to pay tax.

Don't get me wrong things could be worse, but there just not working out the way I expected. I really feel for the chap on the other thread who bought that car to comply with the four year rule. My company has the same policy but I decided to wait until I recieved some 'encouragment' to comply before jumping in. Glad I did, or I'd have the same dilemma now.


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Postby BMS on Thu Sep 08, 2005 10:43 pm

Hi Dave

car allowance notwithstanding, as Dean says this is taxable anyway, based on your estimated mileage you should be entitled to claim :-

10000 miles at 40p/mile = 4000
15000 miles at 15p/mile = 2250

total of £6250

less 25000 at 15p/mile paid by employer = 3750

total claim for 6250-3750=2500 before tax (as I understand it)
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Postby BMS on Thu Sep 08, 2005 10:46 pm

Sorry Dave,to early in the morning.....

10000 x .40 = 4000
15000 x .25 = 3750

less paid 25000 x .15 = 3750

total claim = 4000 before tax
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Postby King_Maker on Thu Sep 08, 2005 11:10 pm


The employer is paying 12p per mile = £3000, which increases the claim to £4750. This is worth £1045.00 for 22% taxpayer.

I would suggest that the employer scraps the Car Allowance Scheme + 12p per mile, and changes to a pure mileage allowance. If the mileage rate was set at (say) 40p per mile for the first 10,000 miles and 12p thereafter, the company should be no worse off (assuming 25,000 business miles), and Dave123 would receive about an extra £800 p.a after tax.
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