How to manage mileage expenses and commuting allowance
The basic rule when managing mileage expenses and reimbursements is that only ‘business-related’ costs should be reimbursed.
It seems so simple, but it’s not. The confusion lies in what is and isn’t a business-related journey - particularly if it involves a commuting component.
It can be confusing and lead to businesses losing money. How? They reimburse unnecessary travel costs and raise the risks of compliance breaches.
So here’s a look at the issue and how to better manage mileage tracking and reimbursements:
Should mileage reimbursement cover travel to the office?
The simple answer is no.
The general rule is that work-related journeys are those that take place only after an employee has started work. So traveling to a workplace is classed as a private journey, not a legitimate claim.
This is based on the guidance provided by the tax authorities. For financial compliance, it simplifies the process to follow these guidelines. However, it is ultimately a choice for each employer to define their expense policy (within the confines of the law).
What are the HMRC rules on commuting expenses?
The HMRC allows tax relief to be claimed on ‘business-related’ journeys that meet one of two criteria:
- An employee needs to make a trip in order to do their work
- Their work requires them to visit a location other than their normal workplace
This covers the vast majority of regular business trips. Whether it’s attending a meeting, picking up office supplies, or traveling between various company sites.
They also make it clear for tax purposes, that any regular commute between a person’s home and their permanent workplace is classed as a ‘private’ journey.
HMRC’s definition of a ‘permanent workplace’ is, “A place at which an employee works is a permanent workplace if he or she attends it regularly for the performance of the duties of the employment. It is usually clear whether or not a place is an employee’s permanent workplace (and, therefore, whether a journey to that place is ordinary commuting).”
Travel to a temporary workplace may be allowed if:
- The person works there for less than 24 hours
- They are at the location for less than 40 percent of their time
What if an employee travels from home to a client or meeting?
For tax purposes, legitimate business expenses are only those mileage costs that are over and above a person's normal travel to work routine.
If they claim for a road journey from their home to a business conference that’s 16 miles away, their usual four-mile commuting distance can be deducted. This deduction is often referred to as “off-set mileage.”
This off-setting method is commonly used by public sector organisations. It allows employees to be flexible while making sure employers are covering only the business-related part of an automobile journey.
Traditionally, finance teams have been slow to off-set mileage due to the administrative complexity of the process. With a manual method, users or admins would be required to calculate the distance by manually deduct these ‘private’ trips from mileage claims. Technology has made this process much easier - and faster.
How can technology help ‘offset mileage’ for expense reimbursement?
Digital tools like mileage tracking apps are making it much simpler to effectively offset mileage expenses.
Here’s how it works:
- Finance teams can set individuals’ commutable mileage within their user profile
- Mileage claims that involve travel from the person’s home are automatically deducted with the commuting distance.
- Only the ‘business’ portion of the journey is reimbursed.
This saves businesses unnecessary costs paying out on commutable mileage allowance and increases compliance.