Understanding Mileage Claims and Loan Interest Deductions

The Approved Mileage Allowance Payment (AMAP), introduced in 2002, simplifies tax-free payments for business travel in personal vehicles. However, an area often questioned is whether loan interest, a common cost for business owners, can be included in these mileage claims.

What is AMAP?

AMAP covers the use of cars, vans, motorcycles, and bicycles for business purposes, providing set rates to cover fuel, vehicle excise duty (VED), and maintenance costs. Since April 2011, these rates are:

  • Cars and vans: 45 pence per mile for the first 10,000 miles in a tax year, 25 pence thereafter.
  • Motorcycles: 24 pence per mile.
  • Bicycles: 20 pence per mile.

Notably, incidental expenses like tolls and parking fees, if solely for business purposes, are deductible, but they are separate from the AMAP rates.

AMAP for Employees vs. Self-Employed Individuals

AMAP specifically applies to employees. In contrast, self-employed individuals can claim motoring costs based on actual expenses or use the same rates as employees, termed a ‘simplified expenses claim.’

Can Loan Interest be Claimed Under AMAP?

For employees using AMAP, HMRC’s stance is that the allowance covers general and mileage-related expenses, including loan interest for the vehicle purchase. Therefore, no additional deduction for loan interest is allowed under this scheme.

Different Scenario for Self-Employed Individuals

The situation differs for the self-employed. If they opt for the ‘simplified expenses’ method using AMAP rates, it’s arguable that loan interest can be claimed. HMRC has not explicitly excluded loan interest in the fixed amount for self-employed individuals. Loan interest is a financing cost, not a direct expenditure on purchasing, and thus could potentially be considered a deductible expense.

Conclusion

Understanding the nuances of mileage claims, especially regarding loan interest deductions, is crucial for both employed and self-employed individuals. For employees, AMAP includes loan interest, offering no scope for additional deduction. However, for the self-employed, there’s a potential argument for deducting loan interest under the simplified expenses method. As always, it’s advisable to consult with a tax professional for tailored advice specific to your circumstances.

 
 
If you found this useful, please share it using the icons at the side of the page, or leave a comment below.

Any questions?

If you’d like a meeting or a video call to discuss this, please get in touch with your favourite Liverpool accountant