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What is Mileage Allowace

Mileage Allowance Payments (MAPs) are what you pay your employee for using their own vehicle for business journeys.

You’re allowed to pay your employee a certain amount of MAPs each year without having to report them to HMRC. This is called an ‘approved amount’.

To calculate the ‘approved amount’, multiply your employee’s business travel miles for the year by the rate per mile for their vehicle.

Type of vehicle    First 10,000 miles                          Above 10,000 miles

Cars and vans     45p (40p before 2011 to 2012)     25p

Motorcycles        24p                                                 24p

Bikes                    20p                                                20p

How to calculate expense for working from home 

Calculate your allowable expenses using a flat rate based on the hours you work from home each month.

This means you don’t have to work out the proportion of personal and business use for your home, eg how much of your utility bills are for business.

The flat rate doesn’t include telephone or internet expenses. 

You can only use simplified expenses if you work for 25 hours or more a month from home.

Hours of business use per month: 25 to 50: £10

51 to 100: £18

101 and more: £26

What is Flat Rate Scheme (FRS)

The amount of VAT a business pays or claims back from HM Revenue and Customs (HMRC) is usually the difference between the VAT charged by the business to customers and the VAT the business pays on their own purchases.

With the Flat Rate Scheme:

  • you pay a fixed rate of VAT to HMRC

  • you keep the difference between what you charge your customers and pay to HMRC

  • you can’t reclaim the VAT on your purchases - except for certain capital assets over £2,000

To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.

What is Dividend

Dividend is paid by the company to its shareholder out of profits. Dividend money can be paid monthly/yearly. Normally it is paid yearly.

Tax on Dividend:

You only pay tax on dividends that go above your dividend allowance in the tax year. Dividend allowance for 2018-19 and onward is £2000. 

Dividend tax rates for 2019-20 are:

Basic Rate: 7.5% (0- £37500)

Higher Rate: 32.5% (£37501 - £150000) 

Additional Rate: 38.1% (Over £150000)

Dividend tax rates for 2018-19 are:

Basic Rate: 7.5% (0- £34500)

Higher Rate: 32.5% (£34501 - £150000) 

Additional Rate: 38.1% (Over £150000)

What is Personal Allowance

How much income tax you pay in each tax year depends on

  • How much of your income is above your personal allowance

  • How much of your income falls within each tax band

Some income is tax free

In the current tax year 2019-20, standard personal allowance is £12500. There is no income tax to pay on this income. 

Tax Tax Rates 2019-20:

0- £37500: 20%

£37501 - £150000: 40%

Over £150000: 45%

Tax Tax Rates 2018-19:

0- £34500: 20%

£34501 - £150000: 40%

Over £150000: 45%

Salary or Dividend

This is relevant to limited companies. To make it tax efficient, directors of the company normally withdraw their income as director salary and dividends. 

FAQs have been collected from HMRC & Govt. websites