Best Accountants in Wellington

As an employer, you can pay your employees tax-free mileage payments where they use either their own car or a company car for business journeys. However, the rates that you can pay tax-free depend on whether the car is the employee’s own or a company car and, where the employee drives a company car, the engine size of the car and the fuel that it uses. It is important that you use the correct rates to avoid landing the employee with an unwanted tax bill. Employees using their own cars Where an employee uses their own car for business journeys, you can pay mileage payments tax-free up to the approved amount. For tax (but not National Insurance), the approved amount is calculated for the tax year as a whole by multiplying the employee’s business mileage for the year by the approved rate set by HMRC. For cars and vans, the approved rate is 45p per mile for the first 10,000 business miles and 25p per mile for any subsequent business miles. This means that if an employee drives 12,000 business miles in the tax year, you can make mileage payments of up to £5,000 tax-free. If you pay less than this, or do not make mileage payments, the employee can claim a tax deduction for the difference between the approved amount and the amount you pay, if any. You can also make tax-free mileage payments if an employee uses a motorbike or bicycle for business journeys. The approved rates are set at 24p per mile for motorcycles and at 20p per mile for any subsequent business miles.