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Tax Talk - IRD mileage rate, use of alternatives and use of money interest rates changes

Inland Revenue’s mileage rate for motor vehicles has been increased to 73 cents per kilometre for the 2017 income year, up from 72 cents for the 2016 income year.  This rate applies to both petrol and diesel fuel vehicles.  The increase is due to a slight increase in fixed vehicle costs and higher average fuel costs during the 2017 income year.  Inland Revenue is not proposing taxpayers make any adjustment if they applied the old mileage rate in the 2017 income year, but the 73 cent per kilometre reimbursement should be used going forward.

Inland Revenue have also been able to obtain reliable data in respect of the fixed and running costs in relation to hybrid and electric vehicles. For the 2017 income year, the mileage rate for hybrid vehicles is 73 cents per kilometre, and for electric vehicles is 81 cents per kilometre. Inland Revenue’s data shows that although these vehicles have lower running costs, these are offset by higher fixed costs.

The mileage rates can be used by self-employed people to determine the deductible costs of business use of a motor vehicle, and to reimburse employees for the business use of their private vehicles. Previously, there was a limit for self-employed people wanting to use this rate in that it could only be used for business travel up to 5,000km in an income year. This limit has now been removed, effective from 1 April 2017.

The mileage rates do not apply in respect of motorcycles. For self employed persons who use motorcycles, actual costs must be used or for employee reimbursement, a reasonable estimate of the employees costs may be used.

Alternatives

Instead of using the mileage rates set by Inland Revenue, it is also possible to use the Automobile Association (AA) rates, which vary depending on the engine size of the motor vehicle, whether it is petrol or diesel, and total kilometres travelled in the income year.

The final option is actual costs.  This requires keeping accurate records, including details of private and business-related expenses, reasons for, and the distance of each journey.  Actual costs includes lease expenditure or depreciation on the vehicle where it is owned by the employee, insurance, petrol, servicing and repairs and maintenance.

If you would like to discuss which is the best mileage rate to use for your business, please contact your usual Staples Rodway advisor.

Use of money interest rate change 

There has been a reduction to the rate of use of money interest applied to both underpayments and overpayments, effective 8 May 2017.  The new rate for underpayments is 8.22% (down from 8.27%) and 1.02% for overpayments (down from 1.62%).

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