How does pay and reclaim work for company and private vehicles on business journeys, and how can you make employee reimbursement more efficient?
What is pay and reclaim?
Pay and reclaim is where employees pay for work related expenses out of their own pocket and reclaim the costs later. For many businesses regardless of size and industry fuel can be a significant business expense. While pay and reclaim may appear a simple solution we look at the issues that can arise and other alternatives available…
What is a mileage claim?
A mileage claim, or as part of a pay and reclaim, can be put in by employees driving their own, or a company vehicle, for work. For those driving a company car or van, the claim is usually for mileage related to fuel costs only, whereas for a driver in a private vehicle, additional costs such as wear and tear, depreciation, insurance and tax can be included.
HMRC defines what journeys constitute as a ‘work journey’. They include:
Travel between a permanent workplace and a temporary work (e.g., visiting clients or suppliers).
Travelling between temporary workplaces.
Travel between two workplaces in the same employment.
Travelling from home to another workplace if home is the permanent workplace due to the requirements of the job.
What rates can you claim?
There are different tax-free rates depending on whether the vehicle is private or business-owned, the type of fuel (including electric) and engine size.
They are:
Advisory Fuel Rates
These are the rates used for company cars, and vary depending on whether it is petrol or diesel, and the size of the engine. You can find more information on rates here. https://allstarcard.co.uk/resources/ev-insights/aer-changes/
Advisory Electricity Rate
The Advisory Electricity Rate is the rate drivers can use to reclaim business mileage for electric vehicles, irrespective of whether they were charged at home or in public and how much the electricity from that charger costs. It is currently 9p per mile. You can find out more here: https://allstarcard.co.uk/resources/ev-insights/aer-changes/
Approved Mileage Rates
These rates are designed for use with private cars and vans used for business journeys (Grey Fleet Drivers). They’re higher than AFRs and the AER because they take into account things like depreciation, maintenance, insurance and taxation of that car.
HMRC mileage rates for the 2023/2024 tax year for cars and vans are:
45p for the first 10,000 business miles
25p for each business mile after 10,000 miles
What mileage rates don’t cover
Drivers can’t claim back through mileage rates expenses and fines such as road tolls, parking fees, congestion and CAZ charges or speeding and parking tickets.
Mileage Allowance Payments
Mileage Allowance Payments (MAPs) are what you pay your employee for using their own vehicle for business journeys.
You pay your employee a certain amount of MAPs each year without having to report them to HMRC. This is called an ‘approved amount’.
To calculate the approved amount, you can multiply your employee’s business travel miles for the year by the Approved Mileage Rate for their vehicle.
If the per-mile reimbursement is higher than the advisory rate, then the employees’ mileage allowance will be taxed as income.
Keeping records
To ensure that the right amount is reimbursed, both employee and employer need accurate records of mileage and costs. According to HMRC, to be compliant these should include:
The date of each journey
If it is a personal or business-related journey
The start and end addresses, including postcodes
The total number of miles driven for the journey
Problems with pay and reclaim
The problem with pay and reclaim is that as an employer you have little control over what is being paid for at the point of purchase, and also, there can be a huge amount of administration involved in confirming that all claims are accurate, or genuine.
It can be easy for drivers to over-claim for mileage in order to try and recoup more money from their employers, and there’s little incentive in them driving more economically either.
On top of this, there’s the issue of lost receipts or a pile of paperwork that needs sifting through, while some employees will resent having to pay out of their own pocket for work mileage expenses, only to be reimbursed weeks, or even months, later.
Reclaim payment control with cards
Using a fuel or electric charging payment card saves a lot of the hassles involved with pay and reclaim. For a start, drivers simply pay with their fuel card and the employer is then billed directly.
Your employee will be happier too if you decide to switch to fuel cards. No longer will they have to finance their business expenses by paying for their fuel up front. They won’t have to worry about whether they have enough money in their bank account for the next business trip either.
They eliminate the need to keep receipts, complete expense forms, and for the employers to instigate reimbursement payments, and can save a business money through access to cheaper fuel as well. All invoices are HMRC compliant, and they come with portals which allow you to control payments, the type and amount of fuel bought and even spot drivers who are proving more expensive or inefficient than others.
For more information about how our fuel and electric vehicle payment solutions can help reduce your pay and reclaim admin headache, take a look at our solutions here.
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