November, 2015

52 Ways To Save Tax #17

Pound coins pileDo you drive a car/van or ride a motorcycle or bicycle as part of your work? If so, the cost of running your vehicle could be claimed against your tax bill.

Whether you are an employee or your self-employed, you could claim for the miles you are driving. Keep reading to find out more about how you could pay less tax by claiming mileage rates for the driving you do for work.

52 Ways to Save Tax – Part 17 : Claim Your Mileage

The rules for claiming your mileage vary depending on whether you are an employee or whether you are self employed.

If you’re employed

If you are employed and you use your own vehicle for business, you may be able to claim ‘Mileage Allowance Relief’.

To work out how much tax relief you can claim, you should add up your business mileage for the tax year and multiply it by the approved mileage rates. The current rates are:

  • Cars and goods vehicles, first 10,000 miles           – 45p per mile
  • Cars and goods vehicles, after 10,000 miles          – 25p per mile
  • Motorcycles                                                             – 24p per mile
  • Bicycles                                                                   – 20p per mile

If your employer doesn’t pay you a mileage allowance you can claim the full approved amount of Mileage Allowance Relief.

If your employer pays you a mileage allowance but it is less than the approved amount, you can claim Mileage Allowance Relief on the difference.

If your employer pays you more than the approved amount you’ll have to pay tax on the difference.

To claim Mileage Allowance Relief, you must keep records of the dates and mileage of your work journeys as HMRC may need you to provide this.

Remember that you can’t claim for travelling to the place where you work, unless it’s a temporary place of work.

If you’re self-employed

If you are self-employed you can claim back allowable business expenses relating to running your car. These include fuel, vehicle insurance, repairs and servicing and parking charges.

These expenses must only be incurred in the running of your business and so you can’t claim for non-business driving/travel costs or travel between home and your place of work.

Many self employed people choose to calculate their car, van or motorcycle expenses using a flat rate for mileage instead of the actual costs of buying and running their vehicle (insurance, repairs, servicing, fuel etc).

The current rates are:

  • Cars and goods vehicles, first 10,000 miles            – 45p per mile
  • Cars and goods vehicles, after 10,000 miles           – 25p per mile
  • Motorcycles                                                             – 24p per mile

For example, if you drive 5,000 miles a year you can claim £2,250 (5,000 x 45p).

If you drive 12,000 miles a year you can claim £5,000 (10,000 x 45p + 2,000 x 25p).

You can’t claim simplified expenses for a vehicle you’ve already claimed capital allowances for, or you’ve included as an expense when you worked out your business profits.

You don’t have to use flat rates for all your vehicles. However, once you use the flat rates for a vehicle, you must continue to do so as long as you use that vehicle for your business.

Remember that you can claim all other travel expenses (e.g. train journeys) and parking on top of your vehicle expenses.

52 Ways To Save Tax #16

Man with laptopIf you’re self employed it is important that you keep a close record of your expenses. Offsetting the costs of running your business is a key way to ensure that you don’t pay more income tax than you have to.

If you run your company from home then you can claim the costs incurred by this as a business expense. Keep reading to find out more about how you could pay less tax by claiming expenses for using your home as an office.

52 Ways to Save Tax – Part 16 : Using Your Home as an Office

If you’re self employed your business will have some running costs. As long as these are allowable expenses you can deduct them from your income in order to work out your taxable profit.

If you work from home then you can claim the costs of running your business from home as an allowable expense. You may be able to claim part of the cost of things like:

  • mortgage interest/rent
  • electricity and heating
  • Council Tax
  • internet, broadband and telephone use

Just as with other expenses, you can only claim the proportion of the cost that applies to business use. So, if your home phone bill was £100 and you used £40 for work calls, you can only claim £40 as an allowable expense.

If you work from home you have to find a fair way of dividing the costs between your own use and business use. There are two main methods for doing this, as we see next.

  1. Use the number of rooms

One of the simplest ways to work out the cost of running your company from home is to use the number of rooms on your home.

For example, you have 6 rooms in your home and you use one of these as your office. Your annual electricity bill is £300. Assuming all rooms use equal amounts of electricity, you can claim £50 as allowable expenses (£300 divided by 6).

If you only work from home one day a week, you could claim £7.14 as allowable expenses (£50 divided by 7).

  1. Simplified expenses

If you are a sole trader or a partnership where no companies are partners you can use ‘simplified expenses’ – as long as you work at least 25 hours a month from home.

Here, you keep a record of the hours you work at home each month. You then apply the appropriate flat rate.

  • 25-50 hours worked at home per month – claim £10
  • 51-100 hours worked at home per month – claim £18
  • 101 or more hours worked at home per month – claim £26

So, if you worked for 75 hours at home for 10 months and 125 hours at home for two months you could claim allowable expenses of £232 (£18 x 10 plus £26 x 2).

The flat rate doesn’t include telephone or internet expenses. You can claim the proportion of these bills used for business use by working out the actual costs.