A new ruling may offer your organisation and employees an opportunity to reduce NI contributions and taxes paid on car allowances. Clever use of SAP HR standard features and some configuration in the Travel&Expense and Payroll modules will allow you to make use of this opportunity without creating extra manual admin work.
If you pay mileage tax free within the statutory limits you’ll probably do so through the SAP Travel&Expense module. If this is not implemented in your organisation, you’ll have a wagetype set up to capture the miles on a monthly or case by case basis, e.g. in infotype 2010, and which automatically multiplies it with the right mileage rate.
If you pay mileage above the statutory tax-free limits, you should still capture it in expenses, if available, and use the standard interface between the expense and payroll modules to calculate and deduct the appropriate taxes. A similar logic for taxation applies, if you capture a wagetype manually in a PA infotype.
Now there is a ruling that could possibly save your employees some taxes and your organisation some NI contributions, but could make administration just a little bit more complicated for you: (note: this is an example for illustration purposes only and not to be understood as tax or legal advice. Check with your tax advisor, before implementing. The source of the information given below would be a good starting point)
If you pay employees, who are using their private car for business purposes:
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a monthly car allowance, which is subject to tax and NI contributions and
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a nominal amount per mile, which is below the tax free limits (45p per mile for the first 10000 miles in a tax year, 25p above that)
you can use the difference between your mileage payment and the tax free limit to reduce the taxable amount of the car allowance.
Example:
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you pay an employee GBP 150 as monthly car allowance making this GBP1800 per year
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you pay 20p mileage and the employee has 5000 business related miles in that year making that GBP 1000
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that means you fall short of the maximum tax free mileage by GBP 1250 ( you pay mileage at 25p less than the tax free limit of 45 p per mile so 5000 miles @ 25p per mile )
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therefore you can reduce the taxable part of the GBP 1800 by GBP 1250 and pay taxes and NI on GBP 550 only.
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Depending on the tax and NI bands applying this would easily make for > GBP 100 NI saving for the employer and several hundred pounds combined NI and tax savings for the employee.
Credits: the source for the statutory information and news on the new ruling, where the tax reduction model has been applied is the July Newsletter of Clarkson Cleaver & Bowes Ltd., iProCon’s trusted accountancy.
So, probably worth doing, but you may be put off by the thought of the extra admin work this would mean for you. Here’s some more good news: with the right configuration there doesn’t have to be any extra manual work.
If you use the SAP Travel&Expense module to reimburse mileage, you can use the standard payroll interface to provide the payroll module with the necessary information and with some moderate wagetype and schema configuration, you can have a fully automated process reducing the taxable and NIable amount accordingly. It’s also less error prone than any manual process could be. It shouldn’t be more than a day of config work, if payroll and T&E are set up properly already, though your bespoke context may add complexity that needs closer inspection to be assessed.
The following diagram illustrates the information flow when using Travel&Expense integration with payroll:
If you capture mileage as a wagetype in a PA infotype (seriously: you really should consider the T&E module), it’s if anything, easier.
If you want to learn more about the technical side of this process or about Travel & Expense processes in SAP HR with or without Self Services and Approval workflows, just get in touch.
