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  • Shepherd Partnership

Do you know how payments to employees in excess of HMRC's authorised rates should be dealt with?

Although fuel prices have come down of late, fuel costs have been very high and it was back in 2011 when The Approved Mileage Allowance Payments were last increased. If you are thinking about paying more than these rates this would have both tax and National Insurance implications.

For the purposes of income tax the following rates apply:

An anomaly of the system is that different rules apply for National Insurance. For this purpose, the first 10,000 business miles rule does not apply.

So what does it actually mean if I pay more than these rates?

Tax rules

If you pay more than these rates, the excess amount n 45p per mile, the excess is a benefit in kind which will need to be reported to HMRC on form P11D. If you pay your employee less the these rates they would be able to get tax relief called Mileage Allowance Relief on the unused balance of the approved total.

National Insurance rules

If the mileage paid to your employee in the earnings period exceeds the qualifying amount you should include the excess in their total income for that earnings period when calculating Class 1 National Insurance (but not PAYE tax) through your payroll.

Unlike with Income Tax, there is no Mileage Allowance Relief for National Insurance if the employer pays less than the approved amount. It is also not possible to carry forward the difference between the mileage paid and the qualifying amount to a later earnings period.

We appreciate that this can be very confusing, so please get in touch with any questions.

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