over 10000 miles

[expat]

I will go over 10000 business miles this tax year. After 10000 miles the mileage rate changes.


HMRC gives this advice on thresholds:

For tax purposes: 45p for the first 10,000 business miles in a tax year, then 25p for each subsequent mile
For NICs purposes: 45p for all business miles

How best to handle this? Obviously if if were the same rate for tax and NICs, MyCo could just pay me (miles) * (rate) outside the payroll. But when the rates are different for tax and NICs, do I (for example) have MyCo keep paying the higher rate, and declare the difference on SA as income subject to tax but not NICs? Or does it have to be taxed PAYE? Can I plug it in to Sage Instant Payroll as such, to pay PAYE but not NICs on it?

Yes, I know:
search site - check.
google - check
ask accountant
ask HMRC
ask Sage

but some of you must have been there already, no?

[malvolio]

Don't see the problem. I just take 25p a mile from that point on. Don't worry about taxes at marginal rates or NICs or any other variations. Since the expense are free of tax and NICs why do anything else? They are only relevant if you have a company car and nobody's that silly.

The logic is that by 10k miles you've proportionately covered the cost of supplying the vehicle, so now all you get are running costs.

[Martin at NixonWilliams]

I will go over 10000 business miles this tax year. After 10000 miles the mileage rate changes.

HMRC gives this advice on thresholds:

How best to handle this? Obviously if if were the same rate for tax and NICs, MyCo could just pay me (miles) * (rate) outside the payroll. But when the rates are different for tax and NICs, do I (for example) have MyCo keep paying the higher rate, and declare the difference on SA as income subject to tax but not NICs? Or does it have to be taxed PAYE? Can I plug it in to Sage Instant Payroll as such, to pay PAYE but not NICs on it?

The simplest and generally most efficient way of handling this is to only pay the 25p per mile once you have reached 10,000 miles during the tax year. It makes no sense to pay above this amount in an owner managed business.

Anything you pay in excess of the statutory rates will be taxable. For example, if you continue to claim 45ppm and you end up travelling 12,000 miles, you will be taxed on 2000 x 20p, so a taxable benefit of £400.

I am unsure what you mean by the rates being different for tax and NI, the rates are the same. Any excess mileage payment is subject to NI as it is a benefit in the form of cash.

It is possible to operate correctly through Sage payroll but I suggest leaving this to an accountant.

I hope this helps.

Martin

[expat]

I get the logic of the rate being lower. But my arithmetic says that with 175 miles each way every week, applying the higher rate to the NIC allowance after 10k will make a difference of some £64 in my pocket every month. I might as well have that as long as it's allowed.

There is such a thing as more hassle that it's worth, and that may apply here.

[expat]

The simplest and generally most efficient way of handling this is to only pay the 25p per mile once you have reached 10,000 miles during the tax year. It makes no sense to pay above this amount in an owner managed business.

Anything you pay in excess of the statutory rates will be taxable. For example, if you continue to claim 45ppm and you end up travelling 12,000 miles, you will be taxed on 2000 x 20p, so a taxable benefit of £400.

I am unsure what you mean by the rates being different for tax and NI, the rates are the same. Any excess mileage payment is subject to NI as it is a benefit in the form of cash.

It is possible to operate correctly through Sage payroll but I suggest leaving this to an accountant.

I hope this helps.

Martin

Martin, thanks for your reply. However HMRC do state that the rates are different, as I quoted in my post. That's the source of my problem, if the rates were the same then I would have no problem. Of course I can solve it by just paying 25p/mile after 10k, and that might be better value than getting my accounant to do it!

[craig1]

Alternatively, if you're one of these people who don't take much salary then you could still pay yourself the full rate of 45p per mile and BIK it without incurring any tax/NI liability at all while still reducing your company's reportable profit.

[Martin at NixonWilliams]

Martin, thanks for your reply. However HMRC do state that the rates are different, as I quoted in my post. That's the source of my problem, if the rates were the same then I would have no problem. Of course I can solve it by just paying 25p/mile after 10k, and that might be better value than getting my accounant to do it!

I see. I agree that you could be financially better off by continuing to pay at 45ppm, but this depends on your circumstances and in particular, your salary level. In your case, assuming 50 weeks at 175 miles each way you would travel 17,500 miles. The taxable benefit would therefore be £1,500 (20ppm x 7,500).

If you are on a salary equal to or just above the personal allowance, you will pay tax on the benefit at 20%, totalling £300. The company will save CT at the same rate and so the tax effects will be neutral.

If you are on the common salary of £7,696 there will be no additional tax to pay as your salary plus the benefit will fall below the personal allowance, currently £9,440. In this case you could well be better off paying the additional miles at 45p.

Note that in both of the above scenarios you are using up £1,500 of the available allowances before having to pay additional tax on dividends. If the first example above applies to you, do not pay the 45ppm beyond the 10,000 miles. The reason for this is because you will receive £1,200 from £1,500 of taxable income. Due to the CT saving, it will cost the company £1,200. In contrast, ignoring the extra mileage and paying a dividend instead would be more effiicient as you could still take home £1,200 whilst only using £1,333 (£1,200 x 100/90) of your allowances. In summary, the cost to the company in both cases is £1,200, the take home is £1,200 yet one uses more allowances than the other.

In any case the amounts concerned are likely to be small and not worth the hassle!

[expat]

Thanks again, Martin. I should have specified: I am paid a salary in the upper reaches of Basic Rate tax, no dividends, and I avoid Higher Rate tax by having MyCo pay any excess into a SIPP.
So the difference between 25p and 45p a mile, on 350 miles per week, is that £70 every week will, or will not, be subject to Basic Rate tax.

I'd prefer it not to be taxed, but my problem is how to arrange that.

[Martin at NixonWilliams]

Thanks again, Martin. I should have specified: I am paid a salary in the upper reaches of Basic Rate tax, no dividends, and I avoid Higher Rate tax by having MyCo pay any excess into a SIPP.
So the difference between 25p and 45p a mile, on 350 miles per week, is that £70 every week will, or will not, be subject to Basic Rate tax.

I'd prefer it not to be taxed, but my problem is how to arrange that.

I assume you are caught by IR35? If so, it could still be beneficial for you to pay 45ppm above 10,000 miles although the saving will be small. Given your salary level it will be impossible for you to pay the 45ppm above 10,000 miles and pay no tax unfortunately.

[expat]

I assume you are caught by IR35? If so, it could still be beneficial for you to pay 45ppm above 10,000 miles although the saving will be small. Given your salary level it will be impossible for you to pay the 45ppm above 10,000 miles and pay no tax unfortunately.

That's not my problem. I understand that perfectly, I'm not trying to avoid the tax, I'm trying to avoid the NICs (as HMRC state is correct). My problem is how to go about it.

If MyCo pays me 45p/mile over 10000 miles, HOW do I pay the tax? If I put it into Sage Instant Payroll I will end up paying NICs on it too, which I don't need to do. If I just pay it outside payroll as before, I will not have paid the tax. So do I declare it at the end of the year and pay tax on it then, or what? What is the mechanism for paying tax but not NICs on a sum paid from MyCo to me?

EDIT: I see I messed up in my previous post. It's not a question of it not being taxed, but of it not being subject to NIC. AIUI what I should be able to do is get paid 25p/mile free of tax and NIC, plus 20p/mile free of NIC but subject to tax. So how to treat that 20p/mile? Inside payroll, or out?