Mileage rates are compensation payments for using your own vehicle on company business. Providing that you keep within the Government rate bands (now upped to 45p per mile for the first 10k) then this is non taxable.
Although expenses are often paid with salary payments they are quite seperate and are an expense of the business, not a benefit to the employee unless the rates are breached.
Don't forget that a mileage log must be kept for every business mile claimed. It is best practice for this to be collected from employee's and filed as part of the expenses claim process.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The payment should be taxed if the employee is claiming for mileage between their home and normal place of work. Interesting point if the employee is a home worker travelling to the office and whether this is considered a commute. You have to be careful if its a regular day of the week for example.
Also if mileage is paid in excess of HMRC rates (45p for first 10k miles and 25p thereafter) the excess should be taxed as this is a benefit.
If the employee is paid less than the HMRC rates, they can claim tax relief through self-assessment on the shortfall.
Thanks that is really useful information. I get mileage as part of my pay. It used to be 49p per mile and my tax code was adjusted to take into consideration the benefit in kind on the excess. It was recently reduced to 40p per mile just before HMRC increased the rate. I did not realise I could claim tax relief on the shortfall.
I am just about to deal with a company who pays the mileage expenses with the payroll costs, so if i just separate this proportion out of the pay then i should be ok.
There are a couple of exceptions to the mileage allowance.
Agency workers are not entitled to tax free travel expense allowances, even though they are employees of the agency and have to work on different sites.
In some circumstances (usually the building trade) employees that move from site to site cannot claim it if there are breaks in their engagement eg get laid off between different building projects.
Other than that, any "normal" employee can be paid an allowance for necessary travel. Most payroll software has an option to exclude a payment type from the tax and/ or NI calculations
