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Paying employees more than HMRC's approved mileage allowances

Chartwell • Aug 16, 2022

Paying employees more than HMRC's approved mileage allowances

It seems as though the price of fuel is increasing every day. If you have employees for whom you pay their business fuel you may be finding that paying at the HMRC’s set mileage rates does not cover the cost to the employee. Paying above that rate has tax and NIC consequences.


These days few employees have petrol or diesel driven company cars or vans because the tax charged on the benefit in kind generally means that it is not cost-effective to do so (more favourable benefit in kind rates are available for low emission electric vehicles, as well as tax reliefs for companies on purchase). Instead, many employees travelling on business, use their own cars and their employer reimburses them usually to the HMRC approved amount per mile.


The Approved Mileage Allowance Payments scheme allows employers to make tax-free mileage payments up to an ‘approved amount’ where the employee undertakes a business journey in their own car or van. These ‘approved’ rates have not changed for years being 45p per mile for the first 10,000 business miles then 25p per mile thereafter for the tax exemption; the NIC exemption rate is 45p per mile for all business miles.


The problem comes if you pay more than these tax-free set amounts, as it is becoming increasingly likely that businesses may have to in the current financial climate. If payment is more, the excess is a benefit in kind charged on the employee usually taxed via the employees PAYE coding. For NIC purposes the excess is charged to Class 1 NIC in the same way as the payment would be if it were a bonus or salary – all of which increases the tax and NIC bill for the employee so they may be no better off. If HMRC’s set rate does not cover the actual cost, the employee can claim deduction for the difference (but this can entail a lot of calculations in working out the actual figures so maybe not worthwhile).


One option to not using the approved rates is to reimburse the actual cost but again this can involve a lot of calculation work. Otherwise, the employer could pay an enhanced rate to cover the cost to the employee of using the car for business plus the tax and NIC payable on the excess over the approved rate but the employee would have to take the tax hit.

The seventh cause of poor cashflow - Sales levels are too low

By Anna Stubbs • 19 Apr, 2024
It might sound obvious, but it isn’t to many businesses. If current sales levels don’t support the overheads and other cash demands on the business, then your overdraft will keep increasing. This means that your business in its current state is not viable (unless you have ongoing access to new funds from investors or financiers). There are five ways to improve your sales levels. These are: 1 . Increase customer retention . Stop your customers from defecting to the competition. 2 . Generate more leads . Gain more enquiries from people who are not yet customers. 3. Increase your sales conversion rate. Get more of your prospects to buy from you. 4. Increase transaction frequency. Engage your customers to buy from you more often. 5. Increase transaction value. Help your customers to buy more products or services from you. There are literally hundreds of individual strategies that you can implement within these categories to increase sales. Sending you a list would be pretty silly of us and overwhelming for you. Some strategies don’t apply to your industry, and some just won’t work in your business for whatever reason. What we have found through experiencing a wide range of client situations over the years, is that certain things do work in each type of business. There’s a pattern that we see in clients - both good and bad! How does a business grow its sales without its owners becoming overwhelmed by a mountain of change? The best and most supportive way to grow and improve a business is to have someone looking over your shoulder from time to time, helping you build a plan and a forecast, and keeping you accountable to making the changes that will make the most important differences. Without that support, we all end up in our business and never working on it. Talk to us about how we can provide that support.

The sixth cause of poor cashflow - Overheads are too high

By Anna Stubbs • 19 Apr, 2024
Overheads isn’t typically a place where you will find a lot of wastage. Our experience is that business owners are very careful about managing their expenses, and the smaller the business, the truer that statement is. Having said that, as a business grows, so do the layers of hierarchy. Management control can deteriorate, and the business can become a bit flabby. The trick is to trim the fat but not the muscle when evaluating your expenses. As an absolute minimum, every business should do a thorough review of its overheads at the same time every year, so that it becomes a natural routine. Here are some questions to ask yourself: Do appropriate managers and key staff have individual expense budgets? If so, how are these managed? Have you conducted a formal review of all debt service costs and related fees? What policies and cost control processes are in place for sales staff? Include all working away allowances, vehicle reimbursement expenses, entertainment, and credit card use. What was your total marketing and advertising spend for the last 12 months? Have you analysed each component of spend based on effectiveness and results to the business? When was the last time you renewed your IT support contract? Have you negotiated a fixed monthly fee? If so, is your current fee and contract appropriate (consider migration of services to cloud)? List all subscriptions you pay monthly for SaaS cloud services. Are you using all these services and on the right plan for each? Conduct a cost-benefit analysis. And finally, do you consider your accounting fees a cost or an investment? If they’re a cost, you need to reduce them. If you’re getting value from your annual spend with us, maybe you should invest more to get better business outcomes! Best practice for keeping control over spending is to set budgets and monitor them monthly. Talk to us about the best way to do that. We can show you the impact reducing your overheads can have on your cashflow.

The fifth cause of poor cashflow - Gross profit margins are too low

By Anna Stubbs • 19 Apr, 2024
Your gross profit margin is what is left from your total sales after variable costs are deducted. For example, if you're a retailer and your sales in a given period are £1,000,000, and the cost of the goods you sell in that period is £650,000, then your gross profit margin is £350,000, or 35%. In the above example, if you implement some strategies to improve the margin from 35% to 39%, your gross profit will improve from £350,000 to £390,000. That’s an increase in profit of £40,000. You may need to increase your overheads a little to get that increase, however, if you get the results, it will be well worth your investment and energy. There are many ways to lift gross profit. Some will be appropriate for your business, and some won’t. For example, if you’re a retailer, you could focus on reducing stock shrinkage and theft, avoiding some discounting, and making sure you minimise obsolete stock. If you’re a contractor, you might focus on rework and wastage, ensuring all work and materials on jobs get billed, and team member productivity. We can help you to determine the best strategies to lift your margins. We can then run your figures through our Cashflow & Profit Improvement Calculator to show you the impact of seemingly small changes. Don’t let poor margins destroy your cashflow and working capital. Get some help from us to make a better plan.
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