How much are you paying your staff for using their own vehicle?

The Inland Revenue have published the mileage rates for business use of a motor vehicle for the 2022 year.

Helpful for those doing income tax returns for the 2022 year, not so helpful for those of us who reimburse employees for using their personal vehicles in the course of their employment on behalf of the business.

For those reimbursing employees, you can use actual costs, IRD mileage rates, or rate published by a reputable source like AA.    Anything paid to employees over this becomes taxable to the employee.

Rates

These rates can be used to calculate expenditure claims for the business use of a motor vehicle. They may also be used by employers as a reasonable estimate for reimbursement of expenditure incurred by employees for the use of a private motor vehicle for business purposes.

The rates set out below apply for the 2021/2022 income year for business motor vehicle expenditure claims. The tier one rates reflect an overall increase in vehicle running costs largely due to fuel costs.

The table of rates for the 2022 income year
The Tier Two rate is for running costs only. Use the Tier Two rate for the business portion of any travel over 14,000 kms in a year.

The two tiers relate to total kilometres travelled over the income year (1 April to 31 March). So if an employee uses their vehicle for a lot of personal travel, they may exceed 14,000 in any income year.  A logbook is the best way to track mileage for employees in this instance.

If there is no record to track employees total personal vehicle travel, then you can use the maximum payable kilometres of 3500km of business travel at Tier 1, then anything over 3500km at Tier 2 rates.

This is based on 25% of the average annual expected kilometres travelled for each motor vehicle.  25% being the maximum percentage allowable for business deductions where no logbook is maintained.

Vehicle Type Tier One Rate Tier Two Rate
Petrol or Diesel 83 cents 31 cents
Petrol Hybrid 83 cents 18 cents
Electric 83 cents 10 cents

 

Want to learn more?  Contact us.

We cover this and all the core topics in more detail in our Small Business Training Hub payroll essentials training course coming up soon.  Check out our website for more details.

 

Reference: https://www.taxtechnical.ird.govt.nz/operational-statements/2022/os-19-04-km-2022

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