I am going to give an overview of an allowance that you may not be claiming. An allowance is not an expense like stationery that you know what you bought and have a receipt for the exact amount, but a claim for something that might be a bit more difficult to quantify.
Most of us will use our cars at some time for business journeys. I use mine a lot for visiting clients, but I also do go to the gym in it, do the weekly shop etc, so how do I make sure my business pays for the costs of my car when I am ‘on business’ and not when I am going to the gym?
If you have ever worked for an employer and had to travel to meetings etc, in your own car, you will have put in a mileage claim? Well, why not claim that same mileage allowance from your own business?
With a little bit of effort and a spreadsheet or app (for those more technical!), you can easily cover the costs of running your car.
Firstly, if you have a company car, what I say here isn’t for you. If you are thinking of getting a company car and wondering what the options are, talk to a book keeper or accountant, we will be able to talk you through the pros and cons of a company car.
If you are a director of your own limited company, you are classed as an employee, so this works in exactly the same way as if you were in a ‘normal job’ using your personal car for business journeys.
If you are a sole trader or in partnership, you claim from your business, as if you were an employee. It does mean your business cannot own your car, you can’t put the cost of tax, insurance, repairs and fuel through your business, but unless you do a very low level of business mileage each year, it is worthwhile.
So how do I go about claiming this mileage……
Firstly, you need to be able to quantify the miles you want to claim for and prove that they were for business purposes.
In Blog Post 1, I mentioned keeping a diary, well this is one of those uses for that diary! If you have kept a note in your diary where you have been for business each day, you can use this information and a program such as AA Route Planner to build your mileage claim.
My ‘little and often’ top book keeping tip from my last blog also applies here. Update your mileage claim frequently (I do mine once a month).
There are lots of apps out there that will record your mileage for you using satellite tracking etc but utilising another top tip from the last blog – Keep It Simple. If you want an app, great go ahead, it will do the job (as long as you have your phone on you every time you go out!!) but a simple table in Word or a spreadsheet and a bit of time will do the job just as well.
A table or spreadsheet could look something like this.
|Date of Travel
||Reason for Journey
||Client meeting - Mrs Smith
||Home to Costa (Cheltenham) and return
||Home to railway station and return
At the end of your accounting year, summarise all of those tables or spreadsheets into a total number of miles for the year.
For the first 10,000 miles in any tax year, you can claim 45p per mile, with any remaining after that at 25p per mile, so, for example:
If I did 11,000 business miles in one year, my claim would be for:
10,000 business miles @ 45p per mile £4,500
1,000 business miles @ 25p per mile £250
Total Claim: £4,750
You can draw this money out of your business, tax free, to re-imburse you for the costs of running your car for the year. Remember to include it in your bookkeeping records – it is a tax allowable expense too.
The great thing about this method of claiming for your car running costs is that HMRC have set the rates, so if they ever come to see you or ask about your income and expenses, you won’t be left having to justify why used this figure or that. The only thing they can question you on is your mileage and if you have your diary, you can confidently prove you were making a business journey!
Finally, very few people know this one but, if you ride a bicycle for work (and they must be business journeys!), you can also claim in the same way at the rate of 20p per mile for an unlimited number of miles! If you do 10,000 business miles on your bicycle each year that equates to £2,000 – enough for a new bicycle each year (mind you you’d probably need one!).
Using a motorcycle for work? You can claim 24p per mile!
The rules can be a bit more complicated, it’s difficult to cover everything in a short post like this, so if you’d like to know more, drop me a line and we can have a chat or I would happy to answer any specific questions you have.
Next time, we’ll look at another allowance – Use of Home as Office.
Until then, if you are looking for a bookkeeper for anything from some advice now and then to full record keeping, drop me a line and we can have that chat about your needs!