| First examine the facts as they exist in the | | | | detailed records as part of the small business |
| current financial year 2007-08. The current | | | | accounting to substantiate their expense claim |
| approved mileage allowances were set five years | | | | should it later be challenged by the tax authority. |
| ago in the financial year 2002-03 and while the | | | | Devising an expense sheet and submitting this |
| current rates in no way reflect the increases in | | | | sheet to the business is one way of ensuring |
| fuel costs in recent years that all businesses | | | | sufficient documentation exists within the small |
| including small business. The Inland Revenue is | | | | business accounts. |
| actually considering a revised scale of tax | | | | Another way a small business can substantiate a |
| allowances that may even lower the overall | | | | mileage allowance expense claim is to enter each |
| amount that can be claimed which will be | | | | journey directly into the accounts for small |
| detrimental to small business. | | | | businesses, perhaps recording the mileage against |
| The approved mileage allowance for cars and | | | | either sales invoices to customers or against |
| vans is 40p per mile for the first 10,000 business | | | | purchase invoices from suppliers. With these |
| miles and 25p per mile for each business mile | | | | transactions having already been recorded in the |
| over 10,000 miles in each tax year. The approved | | | | small business accounting records with a date, the |
| mileage allowance for motor cycles is 24p per | | | | location also stated on the invoice and the |
| mile for the first 10,000 business miles and 24p | | | | purpose of the journey being obvious the rules on |
| per mile for each business mile over 10,000 miles | | | | supporting information are covered. |
| in each tax year. The approved mileage allowance | | | | That is the easy part of making a valid claim but |
| for bicycles is 20p per mile for the first 10,000 | | | | for many small businesses making such claims |
| business miles and 20p per mile for each business | | | | would seriously understate the true level of |
| mile over 10,000 miles in each tax year. | | | | business journeys. Therefore also include in the |
| These approved mileage allowances demonstrate | | | | small business accounts all other business journeys |
| complete irrelevance to the actual costs incurred | | | | undertaken which may or may not have resulted |
| in performing the business journey. The purchase | | | | in a specific purchase or a specific sale. |
| price of a new motor vehicle would not be | | | | So what other journeys can the small business |
| unusually 100 times the price of a bicycle, plus | | | | accounting system claim as a deductible expense |
| vehicle maintenance costs, vehicle insurance, | | | | against the taxable profit. The answer is basically |
| licence fees and substantial fuel charges in | | | | any business journey and that should include all |
| operating the motor vehicle compared with zero | | | | incidental journeys, perhaps visiting a supplier or a |
| costs for a bicycle. Few small businesses claim tax | | | | customer, visiting customers to quote for work, |
| allowances for bicycle business journeys in their | | | | attending a business meeting, taking money to |
| small business accounts. | | | | the bank. |
| The startling anomaly is that vehicle allowances | | | | Mileage allowances cannot be claimed for a |
| are only twice the bicycle rate on the first 10,000 | | | | business vehicle where the running costs of that |
| miles and only 25% more over 10,000 miles. Not | | | | vehicle are being claimed as a deduction from net |
| that many people are likely to use a bicycle and | | | | taxable profits. Vehicle running costs include the |
| cover in excess of 10,000 business miles in a | | | | capital tax allowances, licence fees, insurance, |
| single tax year. | | | | repairs and maintenance, membership of |
| In addition to the approved mileage allowances an | | | | breakdown services and fuel costs. |
| additional 5p per business mile may also be | | | | Many small businesses may find that more than |
| claimed as a tax free expense if a fellow | | | | one vehicle is used for business journeys. The |
| passenger is also carried on the business journey | | | | business vehicle running costs may be claimed for |
| in the small business accounting records. That | | | | a specific business vehicle on which mileage |
| fellow passenger must also be on a work journey | | | | allowances are not claimed this tax allowances |
| to enable the mileage allowance to be claimed in | | | | may be claimed for the use of a private vehicle in |
| the small business accounts | | | | the small business accounts. |
| Generally there are specific rules on justifying a | | | | Perhaps the small business runs a van for its main |
| business journey and the information that must | | | | business and the running costs exceed the |
| be supplied to support the claim for a tax free | | | | potential mileage allowance in which case the |
| mileage allowance. In practise the Inland Revenue | | | | business should claim the vehicle running costs. If |
| often take a reasonable view of any claims | | | | a different private vehicle is also used for some |
| provided the information provided in the small | | | | business journeys, perhaps even a spouse taking |
| business accounts indicates that the claim is valid | | | | cheques to the bank, then mileage allowances |
| and has been incurred for real business journeys | | | | could be claimed for that journey. |
| as opposed to an invention by the claimant. | | | | Each business should examine their tax allowance |
| When claiming a mileage allowance the essential | | | | practises to ensure the maximum tax free |
| information to provide is the date of the journey, | | | | allowance is claimed and supported with the |
| the reason for that journey, the place visited and | | | | required documentation to lower the tax burden |
| the actual mileage covered. Small businesses who | | | | when preparing the small business accounts. |
| claim this tax free allowance should maintain | | | | |