SE31300 - Employees using their own vehicles for work: rules from 2002/03 onwards - calculation of approved mileage allowance payment - contribution towards business proportion of standing costs plus pence per mile mileage rate paid by employer - example

Section 197AD(2) and Paragraph 4 Schedule 12AA ICTA 1988 as introduced by Section 57 and Schedule 12 FA 2001

This example illustrates the rules for calculating the approved amount for mileage allowance payments (the AMAPs amount) described at SE31250 onwards and also illustrates the guidance at SE31210 about lump sum payments that can be taken into account in working out the tax exempt amount.

See SE31225 for what counts as "business travel."

Employee uses her own car for business travel. In the tax year 2002/03 she covers 8,000 miles of business travel in it. Her employer pays employees who regularly use their own cars for business travel a sum of £840 a year based on the employer's calculations of the typical business proportion of the standing costs of owning a car for employees who are regular business travellers. In addition to this, she gets 30p for each mile of business travel.

As the lump sum payment (which is paid in monthly instalments) is calculated and paid in respect of the expenses of using the car for business travel, it falls within the meaning of "mileage allowance payment" (see SE31210). This means that it can be taken into account in working out the payments that can qualify for exemption from tax.

Step 1

Step 2

For 2002/03 the statutory mileage rates for a car are 40p for the first 10,000 miles of business travel and 25p for each additional mile (see SE31240).

Step 3

Compare the figures from Steps 1 and 2.

• If Step 1 = Step 2: all payments are exempt as AMAPs
• If Step 1 > Step 2, the Step 2 amount is exempt as AMAPs but the excess is chargeable to tax
• If Step 1 <Step 2, all payments are exempt as AMAPs and Mileage Allowance Relief is available on the shortfall.

In this example, Step 1 is greater than Step 2. The mileage allowance payments of £3,240 paid by the employer are split as follows:

Conclusion: employer must report £40 taxable on form P11D or P9D.