Small business mileage reimbursement in the UK
You own a small business and you or your employees drive your own vehicles for work. You know that you can receive mileage deductions for business-related driving. Great! Now, how does that actually work?
Self-employed? See our detailed small business mileage deductions guide for the self-employed.
Small business mileage reimbursement
Small business owners and their employees are entitled to mileage reimbursement so long as they drive for business purposes. Business mileage is driving between two places of work. This can include but is not limited to visiting clients, driving out for supplies, and generally running business errands. Note that ordinary commuting is not considered business mileage.
As a business owner, it is generally expected that you provide employees with a small business mileage reimbursement for their work-related driving. HMRC sets an advisory mileage allowance rate each year that you can use as a guideline for the payouts. The mileage rate covers all expenses of owning and running employees’ vehicles for the business portion of their driving.
It is standard practice for big and small businesses alike to reimburse employee mileage at the advised rate, but you can choose to reimburse at a lower or higher pence per mile.
Bear in mind that if you provide small business mileage reimbursement at a lower than the HMRC mileage rate, employees are entitled to claim mileage deductions on their taxes to make up the difference to the HMRC rate. If you reimburse employees at a higher than the HMRC rate, any amounts over the standard will be taxed as a part of their income.
You can also choose to not pay out mileage reimbursement at all. In this case, employees will be able to claim small business mileage deductions at the HMRC mileage allowance rate on their annual tax return.
Mileage records requirements for small business
In order to claim small business mileage deductions, you and your employees must produce mileage records that adhere to HMRC requirements. A mileage log must contain the date and purpose of each business trip, as well as the distance and start and end addresses, including postcodes.
There are a few ways your small business can keep mileage records for deductions. You can do so manually, in the form of a paper log book or a spreadsheet, or use a small business mileage tracker.
Choosing a small business mileage tracker
Even the most organised business owners and employees will find manually documenting all required details trips into a central spot tedious. Mileage tracking apps can automatically record mileage, keep historical mileage records, and make reimbursements and deductions a breeze.
Mileage trackers are becoming more and more used within small businesses, due to their ability to simplify the recording of work-related mileage and help with creating HMRC-compliant records.
You can find many mileage tracking apps and software, but keep in mind some might be heavier and more expensive to use - they are more suitable for medium and big enterprises. A small business mileage tracker will be able to cover all of your needs and HMRC requirements, and won’t financially burden your small business. Here are some of the important features you should be looking for in a small business mileage tracker:
- Automatically tracks mileage and records all the required by the tax authority information
- Can generate HMRC-compliant mileage logs
- Has online backup and mileage reports are always available in case of future tax audits.
There are lots of different options out there that we encourage you to explore. One option is the Driversnote app which comes with all essential features for a small business mileage tracker.
1. What is allowable business mileage?
Allowable business mileage refers to the miles you drive for business purposes exclusively and can claim mileage reimbursement or deductions on. Read more about what HMRC considers to be business mileage.
2. How do you calculate mileage for a small business?
Calculate mileage for your small business by multiplying your business-related miles by the HMRC mileage allowance rate. For example, if this year you have driven 3000 business miles, you should do the following calculation:
3000 miles x 45p = £1350
3. How do small businesses track mileage?
Small businesses often choose to track mileage with mileage tracking apps, due to the features they offer to simplify mileage recording and the ability to retain historical mileage records. However, some small businesses prefer a manual approach where they write down daily mileage in a paper logbook or spreadsheet.
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If you use a car, van, motorcycle or bicycle for business purposes, you may be able to claim mileage through your taxes.