Claiming Travel Expenses - Mileage Allowance

Please note that this article provides guidance on claiming mileage allowance. Refer to your accountant for an expert opinion on what can and cannot be claimed.

As an employee of your own limited company you, as a contractor, are entitled to claim mileage allowance when you start a new contract, or if the location of your current contract changes. For the financial year 2012-13, you can claim 45p per mile for the first 10,000 miles incurred during the tax year, and 25p per mile thereafter. (Note that the 24 month applies.)

So, let's assume that your round trip (your journey to and then back from work) is 70 miles per day. That means that you can claim 70 x 45p per day, which is £31.50 per day. If you work 20 days during a particular month, you can claim 20 x £31.50, which comes to £630.

At the end of the month, you can claim £630 of travel expenses from your own company. You then write a company cheque to yourself for £630. This is tax free and you do not need to list it on your self assessment tax return.

Your company can offset the £630 against corporation tax. 20% of £630 is £126, which is the amount by which your company's corporation tax bill will be reduced. Any reasonable contractor accounting / bookkeeping software, for example, MyBookkeepingManager (of course!) will do the necessary corporation tax calculations for you.

As you can see, during the course of the year your travel expenses would add up to quite a sizable amount of money. Once you get to 10,000 miles though, the mileage allowance drops to 25p per mile.

Carrying Passengers

If you car share, you can claim an extra 5p per mile for each passenger you carry. So, instead of being able to claim 45p per mile, you would be able to claim 50p per mile. There are conditions though, for example, the passenger has to be an employee of the same company as the driver. Check out the HMRC web site for more information, or talk to your accountant.

Personal Tax Allowance

If you choose to pay yourself less than 45p per mile, say, 35p per mile instead, you can claim tax relief on the 10p per mile on your self assessment tax return. Talk to your accountant about this if you think it might be what you want to do.

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