Business mileage - Approved Passenger Payments
In these uncertain times you’re probably seeking to cut costs. The Approved Passenger Payments allowance is a tax break worth considering. How does it work?
Every little helps
Approved Passenger Payments (APP) enable you to pay employees tax-free if they drive for you on business. If an employee takes a fellow worker on a business trip in his vehicle you could pay up to 5p per passenger, per mile tax and NI-free. That is, provided that the passenger is also travelling for you on business. The APP can be paid whether the vehicle is owned by the business or privately.
Trap. You can’t pay the APP tax-free to an employee in respect of a company-owned vehicle unless they are to be taxed on a corresponding benefit-in-kind. For example, if they are using a pooled car, there is no taxable benefit, and so the APP cannot be paid (see The next step).
Tip. If you are already paying a mileage allowance to your employee,e.g. the Approved Mileage Allowance Payments (AMAP) (see The next step), you can pay the APP in addition.
It pays to share
If several employees are travelling to one destination, asking them to share a vehicle could reduce your costs significantly.
Example. Don’t pay three employees 40p per mile (tax and NI-free) to travel to a customer in their own cars. Instead, you could pay one driver 50p per mile (40p AMAP +5p +5p APPs) to take two colleagues with them. Therefore, a 150-mile round trip would reduce the mileage allowance you would have to pay by £105 (perhaps less a few pounds to cover the extra miles travelled by the driver to collect their colleagues.)
Tip 1. Tell your employees that when travelling on business they must share vehicles wherever possible, but you will pay them an extra 5p per mile for each passenger they take.
Tip 2. Don’t overlook the fact that company directors are employees and so can pay themselves APPs in exactly the same way as other employees.
Trap. Unlike AMAPs, if you don’t actually pay your employee the APP, they can’t claim it as an expense against their tax bill.
Example. Employee A and employee B travel 200 miles on a business trip in employee A’s private car. If employee A is reimbursed at the rate of 35p per mile, they would receive £70. Had they been paid at the AMAP rate of 40p a mile they would have been reimbursed £80. The employee can claim a deduction against income tax of £10 (£80 - £70 paid), but they can’t claim £10 (200 miles x 5p) for their passenger through their tax return.
Other points to watch
Employees using their own vehicles for business trips should check with their insurers that this arrangement doesn’t cause problems with their cover. This is particularly important when passengers are being taken on such journeys. The additional insurance cost of occasional business use starts from around £25.
Tip. The cost of additional insurance for business use is tax deductible. The Taxman confirmed this in his Tax Bulletin 19 (see The next step).
For the definition of a pooled car (TX 09.10.04A), for more information on AMAPs (TX 09.10.04B), and to view HMRC’s Tax Bulletin 19 (TX 09.10.04C), visit http://tax.indicator.co.uk.
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