You have employees who make local deliveries using bikes rather than cars where feasible. Can you still make payments for the business mileage tax free? Naomi Swan CA, based in our Hawick office, discusses below.
The tax position will depend on whether the couriers are employees or self-employed. Of course, with HMRC’s increased enforcement action in the gig-economy industry, purported self-employed couriers may be classed as a “worker” anyway.
If an employee uses a bicycle not owned by their employer for business journeys, the employer can pay them an approved mileage allowance of up to 20p per mile tax and NI free. Keep in mind that journeys between an employee’s home and their permanent workplace are not qualifying business journeys.
However, a delivery person of the sort we’re considering, i.e., whose work is solely making deliveries (no work in the shop etc.) has no permanent workplace and so every mile from home to your premises and the customers’ locations is a business mile.
Lower payment made
If an employer pays less than the maximum mileage allowance rate the employee is entitled to a tax deduction for the difference.
If an employer pays more than 20p per mile they must deduct PAYE tax and NI, and account for employers’ NI on the excess.
You may have planned to pay a small fixed amount for each delivery and a mileage allowance depending on the distance of return journey between their premises and the customer’s location. The tax and NI-free status would make the mileage allowance worth more pound-for-pound than a fixed payment. So, they could pay the delivery riders less but they wouldn’t be worse off because they have to pay tax on the mileage element.
The downside is that the tax and NI-free allowance of 20p per mile only applies to payments to employees. This means the delivery riders would be taxed on the mileage allowance after deducting any expenses incurred for the purchase and upkeep of their bikes.
By contrast, if the deliveries were made by car, van or motorbike your client could pay the self-employed drivers a mileage allowance which would be tax and NI free for the recipients.
The tax and NI-free 20p per mile allowance can be paid to employees but not to self-employed workers. The allowance counts as their business income but they can claim tax deductions for the cost of buying and maintaining their bikes. However, mileage allowances paid to self-employed motorbike, car and van drivers can be tax and NI free.
If you would like further advice do get in touch with JRW to fully discuss the implications and other tax related issues.