Should I be Paid Mileage Allowance?

Q.

I have sent a P87 form to HMRC and they have written back to me asking a few questions. One of them is why do my employers not pay mileage allowance (I am claiming back the tax relief on the whole 40p per mile as I have not been paid anything).

I work in the construction industry and so as far as I am aware my workplace is classed as temporary because I am based in the offices which are on the construction site.

I am not sure why I don't get paid any mileage allowance – it just isn't in my contract. Do employers have any legal obligation to pay mileage allowance?

A.

Mileage allowance is the most common benefit offered to employees in the UK. The guidance regarding the tax treatment of this benefit is complex, but it hinges on a number of easily understandable premises. The first of these is that mileage allowance benefits are just that – benefits. While you are entitled to Tax Relief On Your Mileage, your employer is not under any obligation to pay any set amount.

What Should Employers Pay?

As it stands, employers may, at their discretion, pay mileage allowance at a rate of up to 45 pence per mile* for the first 10,000 miles travelled by an employee. Any mileage over this amount can be reimbursed at a rate of 25 pence per mile. However, the rate at which employers actually pay can vary wildly.

In your case, it would appear that you are not being reimbursed at all. It is important to remember that the 45 pence per mile rate is not necessarily money to which you are entitled – that is, it is not money that either your employer or the taxman is statutorily obliged to part with. Rather, you are entitled to tax relief on a portion of your income equivalent to 45 pence for each of the first 10,000 miles, and 25 pence for each mile after that.

Tax Relief

The short answer, therefore, is no, your employer does not have to pay you a mileage allowance. However, the taxman offers tax relief on the difference between the rate at which your employer offers reimbursement, and the maximum allowable rate of 40 pence per mile. In your case, they should therefore offer 100% tax relief.

To a certain extent, however, the tax office is right to ask why you are not being offered mileage allowance, particularly given the requirements of your employment. Employers usually find that it is in their interests to offer mileage allowance, particularly if it avoids the necessity to provide a company car fleet. Regardless, aside from the fuel costs you must also consider the cost to you in terms of the depreciation of your vehicle. As such, if you are in a position to do so you may wish to push your employer to begin offering this type of benefit.

*Figures have been updated for this 2011-12 tax year.