Approved Mileage Allowance Payments Increase to 45p/mile Next Week

1^st April 2011

Umbrella Company contractors driving a car in order to travel to and from a temporary workplace, are able to claim a flat rate of tax-relief for the expense associated with running the vehicle. Prior to the 2011-12 tax year this amount has been calculated at 40p/mile for the first 10,000 claimable miles travelled in a given tax year and 25p/mile over 10,000.

The Chancellor announced in last week's budget that this amount will increase from 40p to 45p/mile for the first 10,000 for the 2011-12 tax year beginning on April 6^th. The amount over 10,000 miles remains at 25p/mile.

This in effect means that an umbrella contractor can claim an additional £500 per year of allowable expenses. Saving additional rate tax-payers £289, higher rate tax-payers £246 and basic rate tax-payers £202 per year after tax.

For example John travels 40 miles to and from his contract site each day for 40 weeks of the year. Over the tax year, this is 16,000 miles. John will now be able to claim 45p times 10,000 miles and 25p times 6,000 miles for a total of £6,000 of allowable expenses against which tax relief can be claimed. (previously this would have been £5,500). If John were a higher rate tax-payer using our umbrella services, he would pay £246 less tax across the year.

For those contractors whose end-user client or agency reimburses their cost of travel, they can claim the difference with the Approved Mileage Allowance Payments (AMAP) against tax if the reimbursement is less than the AMAP rate. For example, if their agency has agreed to pay them back 30p per mile travelled, they can claim an additional 15p per mile in tax relief for the first 10,000 miles they travel in the 2011-12 tax year.