Is it actually better for YourCo and You if you pay less than 45p/m for mileage?

[7specialgems]

Worked example, scenario 1 (25p mile):

Profit after all expenses except mileage and CTAX for a period: £2,500
5 employees, 100 miles each = 500 miles
Mileage due to all employees = 500 * £0.25 = £125.00
Profit except CTAX for a period: £2,500 - £125 = £2,375
Net profit after CTAX for a period (small company 20%): £1,900

Worked example, scenario 2 (45p mile):

Profit after all expenses except mileage and CTAX for a period: £2,500
5 employees, 100 miles each = 500 miles
Mileage due to all employees = 500 * £0.45 = £225.00
Profit except CTAX for a period: £2,500 - £225 = £2,275
Net profit after CTAX for a period (small company 20%): £1,820

Based on the example above, is it therefore actually better for YourCo and You (and worse for Hector) if you claim a sensible, but less than 45p/m amount for mileage?

Unless I'm having a Thursday flap, it seems that, in scenario 1, YourCo is better off by £80 and the five employees would claim their share of 20p/m for their mileage back from Hector via Self-Assessment or form P87 (so they're happy).

With there being £100 difference between the two scenarios being claimed in fuel, and £20 of that being in Hector's pocket due to CTAX, unless I am mistaken, in this example, it seems like YourCo is up £80, Hector is down £80 and the employees are all happy because they've got 45p/m.

Would be interested to know what everyone else is charging themselves...

[Martin at NixonWilliams]

I think you are misunderstanding what the P87 form does for the employees.

They cannot reclaim an extra 20p per mile from HMRC. The extra 20p per mile reduces their taxable income, a basic rate tax payer would therefore save 4p per mile via the P87 form.

[ASB]

I'm not sure about your numbers. But if you have a search this has been covered (ducks for cover).

Here is a different way for you to think about it.

Say you pay zero. The company then pays extra CT @ 20% on the mileage amount.

Now from a personal pointof view you claim this against tax. And if you are a 40% taxpayer it means you are not suffering 40% on this slice of income. This will more than offset the CT paid.

Of course i8t's not that simple. What will you do with the extra in the company. Pay it as adividend and then suffer personal tax? Neatly offsetting.

So, there are other things to bear in mind. The answer is, it depends.

[TheCyclingProgrammer]

I was going to say what Martin said but he beat me to it.

In your first scenario, each employee is £16 worse off if they are basic rate payers (£12 worse off if they are higher rate payers).

[psychocandy]

I think you are misunderstanding what the P87 form does for the employees.

They cannot reclaim an extra 20p per mile from HMRC. The extra 20p per mile reduces their taxable income, a basic rate tax payer would therefore save 4p per mile via the P87 form.

LOL. That would be good. I'm going to claim 1p/mile from now on and get HMRC to give me 44p/mile for free. Gonna be rich.

[Ticktock]

Of course it will be better for Yourco if you pay your employees a lower rate of expenses.
If I were one of those 5 employees, however, I'd be pretty pissed off at my bosses trying to shave legitimate costs to bolster their own profits.

[tractor]

..

Worked example, scenario 1 (25p mile):

Profit after all expenses except mileage and CTAX for a period: £2,500
5 employees, 100 miles each = 500 miles
Mileage due to all employees = 500 * £0.25 = £125.00
Profit except CTAX for a period: £2,500 - £125 = £2,375
Net profit after CTAX for a period (small company 20%): £1,900

Worked example, scenario 2 (45p mile):

Profit after all expenses except mileage and CTAX for a period: £2,500
5 employees, 100 miles each = 500 miles
Mileage due to all employees = 500 * £0.45 = £225.00
Profit except CTAX for a period: £2,500 - £225 = £2,275
Net profit after CTAX for a period (small company 20%): £1,820

Based on the example above, is it therefore actually better for YourCo and You (and worse for Hector) if you claim a sensible, but less than 45p/m amount for mileage?

Unless I'm having a Thursday flap, it seems that, in scenario 1, YourCo is better off by £80 and the five employees would claim their share of 20p/m for their mileage back from Hector via Self-Assessment or form P87 (so they're happy).

With there being £100 difference between the two scenarios being claimed in fuel, and £20 of that being in Hector's pocket due to CTAX, unless I am mistaken, in this example, it seems like YourCo is up £80, Hector is down £80 and the employees are all happy because they've got 45p/m.

Would be interested to know what everyone else is charging themselves...

I pay myself the .45p and make an equivalent saving by not spending 2 hours calculating this kind of thing, posting it and reading the replies

[7specialgems]

I pay myself the .45p and make an equivalent saving by not spending 2 hours calculating this kind of thing, posting it and reading the replies

What if you were at work when you calculated it?

[tractor]

What if you were at work when you calculated it?

I would at best, not be worth what I was charging