Mileage query

[gadgetman]

I started my current stint of contracting In Nov 2006. Prior to that I had been a permie with EDS.

During my employment with EDS I claimed mileage for travel on around 11,000 miles. Despite HRMC allowing you to claim for up to 10,000 miles at 40p EDS policy was to pay 40p per mile only up to 6000 miles and 25p above.

I was told (by EDS) that I could claim the difference back from the taxman at the end of the tax year. I therefore expected a tax refund of 4000 miles @ 15p = £600. I duly filled out a P87 which showed a claim for £600.

Long story short - HMRC told me to incorporate the claim into my PAYE return. I supplied the P87 data to my accountants and he added it to the Employment section for EDS. However according to him I am only due the tax back on the £600 i.e. £240.

Now if EDS had paid out up front surely I would have had an extra £600 in my hands, tax free. Can anyone explain how this squares up?

I've tried asking the accountant (from one of the big companies) but to be honest I don't have much faith in him. Initially the return showed a £0 refund and only after I queried this did he confirm that he'd "put it in the wrong box" and came up with the revised £240 figure.

[Nixon Williams]

Sadly you are only due the tax on the £600, so at 40% this would be £240

It is up to EDS to decide what mileage rates they pay, provided they do not exceed the HMRC rates there is no tax to pay on the mileage paid out.

The situation is the same if you stay in a hotel, and claim via your company. If the bill is £100 your company tax bill is reduced by £20 (20% of £100) not by £100, so the net cost to your company of the hotel stay is £80.

I hope this is clear.

Alan

[gadgetman]

Thanks for the reply.

So basically EDS stiffed me when they claimed that I would get it all back at the end of the tax year

[NotAllThere]

Yes, they should have said that you can claim the tax back on the difference. Not the difference.