Following on from the post – Can I claim for my lunch expenses – let’s look now at clearing up the sometimes grey area of motor expenses, mileage rates and who can and cannot claim them. The prevailing schedule of Civil Service rates orAny other schedule with rates not greater than the Civil Service rates
The payment of motor expenses relates to an employee of a business (including company directors) and not to sole traders – where the actual motor running costs incurred are claimed as a business expenses in the financial accounts. Motor expenses can be paid to an employee where the employee uses their own private car for business purposes. For example, where an employee is required to travel to a client or customer’s place of business in order to carry their job.
Where an employee uses their own private car to make this journey, the employee may be paid an expense by the employer. The payment is designed to cover the additional costs of fuel, wear and tear etc of the employee in having to use their car for the business purpose. This payment is generally a tax free payment (although there are some exceptions, so be careful). In the case of company directors, the expense payment can only be made where the directors use their own personal vehicle, not any vehicle owned by the company. In all cases, travel to and from an employee’s home and place of employment is not allowed for tax purposes. Any payment made to an employee in this regard needs to be treated as taxable pay.
There are a number of ways for calculating motor expenses to be paid and the method adopted by the employer will generally depend on the nature of the business, frequency of travel and length of stay away from the normal place of business. The different methods may also have different tax treatments, so make sure you take this into account when deciding on the most appropriate method.
1. Re-imbursement of Motoring Expenses by Flat-Rate Kilometric allowances.There are two types of kilometric schemes which are acceptable for tax purposes, if an employee bears all the motoring expenses:
This is probably the most common method used as it is not difficult to administrate and the payments are calculated by predefined rates.
For any rates to be paid to employees that are greater than the prevailing civil service rates, an application must be made to Revenue for approval to use any such increased rates.
2. Expenses claims submitted to RevenueAnother option is for the employee to submit a claim to Revenue for an expenses deduction (and any wear and tear allowance in respect of the motor vehicle). Where the employee this type of claim, any payment of motor expenses by the employer, including any scale allowances, must be treated as pay and taxed accordingly.
3. Round Sum Expenses:Where the employer agrees to pay an employee an agreed amount each pay period in addition to normal salary to cover expenses. The expense amount agreed is treated as “Pay” and is taxable in the same way as if it were part of the normal salary payment. Any round sum motor expense paid by the employer to the employee
It is good to remember that the above specifically relate to motor expenses and do not include reimbursement for other expenses that maybe incurred as a result of having to travel for work purposes.