Inland Revenue allows you as an employer to reimburse employees – including shareholder-employees – for using their private vehicles for work. To reimburse employees for running costs, you can use:
- Inland Revenue’s kilometre rates, or
- Other published mileage rates, as long as they represent a reasonable estimate. For example, the AA makes mileage rates available free to members and at a cost to non-members. To obtain AA rates call 0800 500 333, or
- Actual costs, or
- A reasonable estimate of the costs likely to be incurred by the employee or a group of employees.
Depending on which method you use, you and your employees will need to keep specific kinds of records.
Reimbursements paid by an employer to an employee are usually tax-free if they compensate the employee for work-related expenses. And the employer should be able to claim a tax deduction for these. Some kinds of reimbursements for travel are more complex.