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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: income from employment

Hannah, an employee, uses her own car for business travel and her employer pays her a mileage allowance. Which statement correctly describes the taxable earnings treatment where the employer pays less than the approved mileage rate?

Hannah can claim mileage allowance relief for the shortfall. Payments up to the approved mileage amount are not taxable, and where the employer pays less than that amount, the employee may deduct the difference from earnings. She cannot claim both the full payment as exempt and the full approved rate.

  1. AThe shortfall is ignored and she cannot claim relief for it
  2. BShe may claim mileage allowance relief for the shortfall between the amount paid and the approved amountCorrect
  3. CThe whole amount paid is exempt and she may also claim the approved rate in full
  4. DThe shortfall is treated as a taxable benefit on the employer under Class 1A

Explanation

Where an employee uses her own vehicle for business travel, payments up to the approved amount are exempt. If the employer pays less than the approved amount, the employee can claim mileage allowance relief for the difference. Option 3 would give double relief.

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