ACCA TX ^UK Syllabus B. Income Tax And Nic Liabilities - The statutory approved mileage allowances - Notes ^{5 / 12}

The authorised mileage allowances

This arises when an employee uses their own car on employer’s business.

• The employee is entitled to receive this mileage allowance from their employer to compensate for additional costs of running the vehicle due to business miles.

• The amount that can be received tax free is set by HMRC. 

  Anything in excess that is received from the employer will be taxable, and anything below the allowance that is received from the employer will be deductible.

Illustration:

Kerry has a salary of £20,000 per annum. 

She uses her own car for employer’s business, the mileage allowance received from her employer is 50p per mile. 

She drove 12,000 business miles in the tax year.

• What is her taxable income?

Solution:

Mileage allowance received = (12 000*0.5) = £6,000

Authorised mileage allowance = (10 000*.45) + (2 000*0.25) = £5,000

Therefore, £1,000 excess will be taxable

Conclusion:

Salary £20,000

Unauthorised mileage allowance £1,000

Total employment income £21,000

Less personal allowance (£12,570)

Taxable income £8,430

Illustration:

Instead, Kerry receives 35p per business mile.

• What is her taxable income?

Solution:

Mileage allowance received = (12 000*0.35) = £4,200

Authorised mileage allowance = (10 000*.45) + (2 000*0.25) = £5,000

Therefore, the deficit of £800 will reduce her employment income.

• Salary £20,000

  Mileage allowance deficit (£800)

  Total employment income £19,200

  Less personal allowance (£12,570)

  Taxable income £6,630

Note Travelling between home and work does not count as business miles. This is considered to be ordinary commuting.

Note Travelling to a temporary workplace will count as business miles. A temporary workplace is one that you attend irregularly or for less than 24 months.

Note Travelling between work and client's offices will count as business miles.