Friday, 19 April 2013

Mileage allowances

Travelling expenses

The Inland Revenue (HMRC) have guidelines when it comes to paying motor expenses. The basic concept is that no tax relief is available for ‘ordinary commuting’, i.e. an employee travelling between their home and their permanent workplace. A permanent workplace is a place an employee regularly goes to work unless it is for a limited duration or for some other temporary purpose.

Temporary workplace

An exception to this is where the employee travels to a workplace that is not the usual place of work, or a temporary workplace. HMRC refers to people who have no permanent workplace, by referring to them as ‘site based’ employees and now accepts that such employees have no ordinary commuting journeys between home and their temporary workplace.

Where the employee’s contract of employment requires him to work from home so that home is the normal workplace, then the employee is entitled to relief for all journeys between home and any other places of work.

In order for a workplace to qualify as ‘temporary’, the employee must expect to be working there for 24 months or less. As long as this is the case, the journey from the employee’s home to the site is not ordinary commuting and the employee is entitled to tax relief for the full costs of the journey. After 24 months then it will become a permanent workplace and the employee is entitled to no tax relief on all of their travel expenses.

Where at first, an employee expects to be at a site for 24 months or less, but this subsequently changes and he becomes aware that he will be working there for longer then, at that point, the site becomes a permanent workplace on the day that the employee becomes aware of the change. From that date onwards, he is no longer entitled to tax relief on the travelling expenses, but he is entitled to tax relief from home to site before that date.

Mileage rates

The mileage rates that can be paid are claimed at the rate of 45 pence per mile for cars and vans, for the first 10,000 miles in a year, any additional miles are claimed at a rate of 25 pence per mile. A table of mileage rates can be found below.

First 10,000 miles
Miles above 10,000
Motor cars and vans
45 pence per mile
25 pence per mile
24 pence per mile
24 pence per mile
20 pence per mile
20 pence per mile
If you are employed and your employer pays you more than the above rates, then the excess payment is counted as a benefit in kind and will be liable for tax. If you are paid less by an employer, you could get some additional tax relief.

It is important to keep a  detailed log of your journeys and mileage claimed as HMRC may require access to the information.

There are other expenses that can be claimed, such as parking, congestion charges and tolls, but you must have the original receipts to back up your claim. You cannot claim tax relief for parking fines or speeding fines.

If you are working at a temporary workplace, then you can also claim amounts for subsistence and accommodation expenses caused by working at the temporary workplace.

As with the other expenses, always be sure to keep receipts as evidence of your claims, as HMRC may request to see them.

If you feel that any of the above is relevant to you and you would like to claim the relief but not sure how, just give me a call and I will be happy to help.


Wednesday, 17 April 2013

Salary sacrifice

Salary sacrifice is offered by some employers as a means for their employees to receive increased pension scheme contributions. This is not an effective way of saving for everyone so if you are offered salary sacrifice by your employer, make sure you benefit before signing up.

How it works

You sacrifice part of your salary. The amount you sacrifice is paid to your pension plan directly by your employer, rather than being paid to you.

As a result of you having a lower salary, both you and your employer pay less National Insurance Contributions (NIC). As part of the salary sacrifice deal, your employer pays all or pat of their NIC saving into your pension plan along with the sacrificed wages.

For example if you earn £30,000 per year and decide to sacrifice £1,000, your new salary is £29,000, with the employer paying £1,000 into your pension plan. You pay less NIC (and in some cases less Income Tax) because your salary is lower. Your employer also pays less NIC and pays a percentage of their savings into your pension plan.

The percentage of NIC saving your employer pays is defined by them as part of their salary sacrifice offer, it could be anything between 0% and 100%.

The advantages

The main advantages are:

  1. You pay less NIC (and in some cases less Income Tax) because your salary is lower; and

  2. You may receive a boost to your retirement savings because your employer may add a percentage of their NIC savings to your pension contribution.
 The disadvantages

Salary sacrifice results in you having a lower salary. This could affect the following.

  1. Life cover – your employer may provide you with life cover, which is usually calculated as a multiple of your salary. As your salary is lower under salary sacrifice, so may be your life cover. Some employers will continue to provide life cover at the pre-salary sacrifice rate.

  2. Refund of contributions – some occupational pension schemes offer a refund of employee contributions on leaving with less than two years service. The contributions made with a salary sacrifice arrangement are not employee contributions and therefore would not be refunded.

  3. Mortgage borrowing – mortgage lenders usually calculate the maximum borrowing level as a multiple of salary. As your salary is lower under salary sacrifice, your borrowing may be affected.

  4. Statutory maternity pay (SMP) – SMP is available if you earn above the Lower Earnings Limit (LEL, £5,564 in 2012/13) prior to going on maternity leave. If salary sacrifice takes you below LEL then you may lose your entitlement to SMP.

  5. State Second Pension (S2P) – this additional part of the state pension is calculated with reference to your earnings. Any reduction in your earnings between the Low Earnings Threshold (£14,700 in 2012/13) and the Upper Accrual Point (£40,040 in 2012/13) may affect this entitlement. In addition, if your salary falls below LEL then your entitlement to S2P may be lost.

If you require further guidance on the above, then feel free to give me a call, or check out the HM Revenue & Customs website for more information.