'Do you or any drivers in your fleet run your own cars for business use? If so, the quicker you complete it the sooner the postman may deliver a cheque.
With all the recent press comments on the new rules, it is easy to forget what the old rules were. Remember, we are doing this for the year 2001/2002 which means that the old rules are relevant.
For companies which offer their company car drivers an allowance, it is usually made up of two parts, cash and a mileage rate. The cash will be subject to tax and National Insurance in the normal way. The mileage rate has its own set of rules.
The simple method
Each year the Inland Revenue publishes a set of mileage rates (Approved Mileage Rates). An employer can pay staff up to these pence per mile rates without them being subject to tax and National Insurance (see table below).
If you are paid an amount less than this rate, you can make a claim directly from the Inland Revenue for the difference.
For example: If Alan was given 14p for each of the 14,000 business miles he drove last year in his 1,800cc car, he would have received £1,960 (14,000 miles x 14p). The maximum tax-free amount Alan could have received was £4,300 (4,000 x 45p + 10,000 x 25p). The difference between the two is £2,340 which can be off-set against his tax bill. Therefore, the mileage allowance received is £1,960.
If Alan had purchased his car on a PCP, loan or hire purchase agreement he can also get tax relief on the interest element, based on his proportion of business to private miles. 2001/2002 is the last year in which a claim for interest can be made.
If Alan's interest cost for the year was £1,800 and he also drove 6,000 private miles, he would get an additional tax claim of £1,260 (£1,800 x 14,000 divided by 20,000).
In total Alan could claim:
Mileage claim: £2,340
Interest relief: £1,260
Total: £3,600
As a 40% taxpayer, this is worth £1,440 cash in hand (£3,600 x 40%). Alan should put £3,600 in box 1.32 (of the employment supplementary section) on his tax return.
The exact method
For the year 2001/2002 tax relief can be claimed using an exact method as an alternative to using the Approved Mileage Rates. Note that this method of claim is not allowed from April 6, 2002.
To make this claim you will need details of your actual car travel costs during the tax year.
You must be able to produce these as evidence if the Inland Revenue asks for them. These are then pro-rated according to how many business miles you travelled compared to your total miles.
You can get tax relief on the difference between the pro-rated costs and the amount received from your employer.
Costs allowed may include insurance, servicing, repairs, petrol, road fund licence and RAC/AA fees. You can claim loan interest as a separate claim (again pro-rated). Depreciation of the car is dealt with by way of capital allowances.
As this method will not be available next year the Inland Revenue has published special rules for capital allowances.
On April 5, 2002 for capital allowance purposes you are deemed to have sold the car at its market value at that date.
If you end up with a balancing allowance you are allowed to claim the business proportion as a tax deduction.
If you end up with a balancing charge, you are allowed to ignore it and claim the normal 25% allowance (pro-rated for business use) in the normal way.'
Inland Revenue rates
Engine capacity Up to 4,000 miles p/a - Excess over 4,000 miles
1,500cc or less: 40p 25p
1,501cc to 2,000cc: 45p 25p
Over 2,000cc: 63p 36p
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