Mileage Allowance

How to set off a business trip against taxes

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Sending your employees off on business trips usually causes costs for the employer. Several existing tools can help you with your expense management, but, however, you should always consider taxes and their regulations more closely. Usually, tax regulations are associated with negative impressions as they often lead to tax payments and reduced profits in consequence. But some regulations may be advantageous for your company – a mileage allowance for business trips being one of them. 

What is a mileage allowance for business trips and how high is it?

Initial situation: A client asks you to send one of your employees to his company for a meeting and you, therefore, start to prepare the business trip for your employee (e. g. using the door-to-door concept). While planning you realise that travelling back and forth by car is the best option. You discuss the issue with your employee and he offers to use his own vehicle for the business trip.

What you need to know: You cannot expect your employee to pay the costs resulting from the business trip himself. If your employee uses his own car for a business trip, you, as the employer, have to assume the costs. That is why it is mandatory to familiarise yourself with mileage allowance for business trips and the correct rules for taxes.

Mileage allowance payments that exceed a certain amount must be reported to HM Revenue and Customs and, consequently, you have to pay tax. Nevertheless, a certain amount of mileage allowance payments per year does not have to be reported. This amount is called the “approved amount” and is calculated as follows:

If the mileage allowance can be counted towards business trips, the amount of business expenses to be deducted is calculated by estimating a lump sum per every mile driven with a vehicle. This lump sum depends on the type of vehicle your employee uses. For cars and vans it is 45p for the first 10,000 miles and 25p for every mile above 10,000 miles. All you need to do is multiplying your employee’s business travel miles for the year by the rate per mile for his vehicle.

You can find information about the current rates on the website of HM Revenue and Customs.

When & how are business trips to be gathered for the business mileage allowance?

In general, every employee is on a business trip as soon as he leaves his usual workplace or his place of residence for business reasons. This includes e. g. trade shows, seminars and visiting other company locations. Attention: Commuting is not a business trip.
It’s important to note that tax authorities can ask for verification if a trip was conducted for business reasons. Therefore, it is important to document travel time and route carefully and to keepcorresponding receipts like hotel bookings, petrol receipts, e-mail correspondence or other relevant documents.
The employee who is travelling is also responsible for documenting the trip. In case an employee hands in insufficient travel receipts, you can deny reimbursement of travel expenses for the business trip.

How should employees document their trips and travel expenses for business trips?

Regarding documentation of travel information, it is advisable to introduce a uniform documenting system and to work with e. g. an Excel template. Save this template using a distinct file name (e. g. Template Documenting Mileage Allowance Business Trip.xslx) to a folder accessible for all employees. This way, your accounting department will be able to retain an overview over travel expenses and thus save a lot of time. Your employees should be able to insert date, name of the visited person and place and the count of kilometres travelled. After entering the data into the documenting system, the employees should hand in sufficient receipts in order to ensure tax remission.

Does the mileage allowance for business trips also apply to planes, trains, etc.?

The mileage allowance for business trips only applies to trips with a private car or another motorised private vehicle. But don’t worry: All the other costs occuring during business trips (such as costs for travelling by train, plane or with other kinds of public transport) can be offset against tax. These expenses don’t fall within the scope of the mileage allowance, but are rather accounted as per receipt. The same applies to pay and display tickets, toll fees etc. And, once again, you are obliged to produce evidence of receipts for the tax authorities. 
Published by Megali on 08/11/2018 Photo credit: © gstockstudio

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