How Employees can claim Tax Relief on Underpaid Mileage

Is your Employer paying less than the HMRC Approved Mileage Rate? There's no need to be out of pocket...

Do you often use your own car for business travel?

If you do, you might find that your employer reimburses you at a rate that’s less than HMRC’s approved mileage rate of 45p per mile (up to 10,000 miles).

In fact, because employers can choose how much they reimburse for business mileage, this is fairly normal practice.

Because of this, Employees who regularly do lots of miles can find that there’s a big difference between the amount they receive and the official rate. 

If this is you, we’ve good news! There’s no need to be out of pocket.

Reclaiming the difference as tax relief is a simple process, and there are 2 options to choose from depending on your circumstances.

You can…

Include it in your Self Assessment Return

If you already complete a Self Assessment tax return, then the calculation can simply be added to your business travel expenses (Employment pages of the return).

Or you can:

Complete a form P87

If you are…

• Not already registered for Self Assessment (i.e. you don’t have to submit an annual tax return)
• An Employee, and you have paid employment expenses; and
• Your allowable employment expenses are less than £2,500 for the tax year -

… then you can download and complete a P87 form.

You have 4 years from the end of a tax year to make a claim, and you can claim for any number of jobs, but you can only submit the form online if you’re claiming for mileage in relation to less than 5 jobs.

Alternatively, you can print and complete a hard copy, and send in the post to HMRC.

What information do you need to hand?

You’ll need to have the following information available:

• The business miles you have covered, and the dates of travel
• The amounts which your employer has reimbursed you against those trips

How much will you receive?

You will receive tax relief on the shortfall based on the level of tax you pay - Basic or High Rates.

To calculate how much you’ll receive, you first need to work out the shortfall. 

To do this, we’ll look at how many miles you’ve travelled and deduct what your employer has already reimbursed. 

Once your business miles exceed 10,000 in any one tax year, the HMRC rate drops to  25p per mile, so let’s look at 2 examples.

Example 1: Less than 10,000 miles

You travel 8,000 business miles in a tax year, and your employer pays a flat rate of 20p per mile.

The difference is 25p per mile, which equates to a total shortfall for tax relief of £2,000 (8,000 x 0.25).

• A Basic Rate Taxpayer would receive tax relief of 20%, i.e. £400
• Higher Rates Taxpayer would receive tax relief of  40%, i.e. £800

Example 2: More than 10,000 miles

You travel 14,000 business miles in a tax year, and your employer pays a flat rate of 20p per mile. 

That’s 10,000 miles at 25p difference per mile = £2,500, plus 

4,000 miles at 5p difference per mile = £200.

So the total shortfall for tax relief in this example is £2,700.

• A Basic Rate Taxpayer would receive tax relief of 20%, i.e. £540
• Higher Rates Taxpayer would receive tax relief of  40%, i.e. £1,080

How will it be paid?

Depending on how quickly the claim is submitted, you may have the choice as to whether to apply your rebate to your tax code or to receive a lump sum repayment.