We get questions related to claiming fuel expenses for a limited company all the time. And as limited company owners and accountants can attest to, claiming fuel expenses has become much more complicated in recent years.
After all, claiming back your fuel expenses is ‘business travel’.
An important note at this point is that the rules for sole traders and the self-employed are different to a limited company.
For simplicity, we’ll use the example of a small limited company business, where you are both the director and owner.
We are also going to presume you are using your own car or van (not a vehicle owned by the company). If the company owns the vehicle there are some other things to consider. We won’t cover those in this blog, but if you’d like to find out more, just get in touch with us.
Generally the taxation rules in play here are the same as that of any employee.
Broadly speaking, if you are paying an employee (aka you as the owner-director) for travel expenses there are enough technical reasons why this works as a tax deduction for the company. It’s more about the additional tax consequences depending on how you do it, rather than losing out on a tax deduction.
Some general ‘rules’
1. Commuting (say to your office or shop) is not an allowable tax-free deduction
By paying yourself back the costs of this is basically your earnings. Regardless of the technicalities around how this is dealt with in your accounts.
To qualify for ‘tax/ni free’ treatment, journeys will need to be between workplaces, work appointments or other travel such as to a temporary workplace.
There are detailed rules around what counts as a ‘business journey’. There are also rules around what counts as a temporary workplace etc, so it’s worth taking advice on your exact situation.
2. Pay a round sum allowance (such as £50 a month to cover fuel)? This is taxed income.
There are ways to then counterclaim from HM Revenue & Customs the amount that was actually allowable as a tax-free cost, but it’s messy and extra work.
You can still also gain tax relief personally for business travel costs (as an employee) directly with HMRC if you haven’t accounted for them in the company. This doesn’t usually work out as efficient, but it’s worth mentioning. This would usually happen in a place where an employee incurs travel costs and their employer isn’t reimbursing.
3. In general the best way to deal with fuel costs is to pay yourself HMRC Approved Mileage Payment rates instead.
At the time of recording these are 45p for the first 10,000 miles and 25p thereafter.
Doing the maths, for most cars this is pretty generous compared to what you use in reality. The reason? To account for general wear and tear, insurance and other running costs.
If you pay above this amount there are further tax and reporting requirements, so stick to or below them!
You should keep a mileage log of these costs, noting where you went on business (and when).
There are some apps that can help with this if you like your tech.
A general rule of thumb is if the cost of fuel is allowable, any other travel expenses should be allowable (think food, hotels, parking etc).
But do I need to keep receipts?
We’d say yes, but mainly for two reasons.
1. To make sure you have proof you incurred expenditure.
2. If you are VAT registered, you can claim some VAT back on the mileage rates, and you will need proof of your expenditure.
If you are interested in what HMRC have to say on the issues, there is detailed guidance in booklet 490 HERE.
You can also check out further guides on our YouTube Channel.