For several years, business owners and employees have benefited from the popular mileage allowance, helping them save thousands in tax by using their personal car for business purposes. However, a clause in the ‘Associated Employments’ rule means that directors, even if they have more than one business, can only claim 45p per mile for a total of 10,000 miles, irrespective of what business it falls under. With many directors fitting this brief, can anything be done to get around this rule?
Both employers and employees can claim a tax rebate for every business journey they make. At current, the rates stand at:
|Vehicle||Up to 10,000 miles||Over 10,000 miles thereafter|
|Cars and Vans||45p||25p|
The maximum an individual can save is £4,500 (for 10,000 miles). This is best illustrated in the following example:
As the director of several event venues, Sherry has to regularly conduct business related trips to see clients. In the current tax year, Sherry has done 14,000 miles. As her first 10,000 miles are calculated at 45p per mile, she saves herself £4,500 and then an additional £1,000 for the next 4,000 miles, which are calculated at 25p. This means Sherry can claim a total of £5,500 back.
What if I am the director of two businesses?
Irrespective of whether you are the director of one, two or more companies, you will be limited to a total of 10,000 miles at 45p per mile. This is because all companies are subjected to the “Associated Employments” rule. With this, associated companies are subject to a shared mileage allowance. Two companies are deemed associated if (directly or indirectly):
- One business has control over the other
- A third party has control over both businesses
It is important to note that this does not apply if you work for two completely unrelated businesses. In this case, you will be able to claim the higher rate of 45p per mile, for up to 10,000 miles, for each company.
How to escape the trap
There are no loop holes in the associated employment rule. However, you may be able to benefit if you carry out unrelated work under self-employment. This is because from April 2013, HMRC announced that those self-employed can claim back their mileage through deducting the amount from their profits. Self-employment does not fall under the “Associated Employments” rule; therefore the two are treated separately. As a result, directors who carry out freelance or casual work can claim an extra 10,000 miles at the 45p per mile rate. Therefore, if we use the example of Sherry, she could save herself an additional £800 – 4,000 miles at the 45p rate instead of 25p – if the work was to fall equally under her two businesses. Thus meaning, she saves a total of £6300 in tax.
If you would like to discuss your own personal situation or would like further information on this, please contact Adam Moody at firstname.lastname@example.org.