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11 January 2021
What happens when you go over your agreed mileage?
You leased a car or a van and you declared your annual mileage. You made a good initial assumption but during your contract, your circumstances changed. Perhaps you moved house and now your car covers more mileage to get to and from work or maybe your business expanded and you now visit customers in cities far away from your home town. Things happen and sometimes you're not able to predict everything, but what does happen when you go over the agreed mileage on your finance contract? Often, there will be a review of the mileage amount and then a charge per mile you have exceeded. But don't panic!
You've gone over the mileage you agreed on your lease
While it may seem like a stressful situation, it's actually fairly common. Finance and leasing companies are used to getting the cars and vans with more miles on the clock than agreed. You may not face huge penalties above the excess mileage charge unless you go absolutely crazy and double your mileage limit!
We go through this process a lot at Commercial Vehicle Contracts, which is why we are going to explain exactly what happens when you exceed your agreed mileage on your lease.
What is the excess mileage charge and how does it work?
When you return the vehicle to the funder at the end of your contract, it will go through a process to establish its condition and this will include the odometer check. The finance company will then calculate how much over your agreed mileage you are and will charge you what is called an excess mileage charge. This charge is set in your finance agreement and should be checked before you sign the contract. Depending on your finance company and sometimes even vehicle model, the excess charge can range from around 6p to £1 plus VAT per each mile above your agreed limit. Some funders increase the excess mileage charge i.e your excess mileage can be 6p per mile for up to 10% of the contracted mileage and then 9p for any extra miles.
For example:
Mr Smith had a Renault Kangoo ZE van on a 3 years contract with a yearly mileage allowance of 10,000. His total allowance for the duration of the agreement was therefore 30,000. At the end of the agreement, Mr Smith returned a van with 35,000 miles on the clock. As per his agreement, the excess mileage charge was 6p per mile so the finance company calculated Mr Smith had to pay £300 (5,000 miles x 6p) + VAT in excess mileage charges.
What about business excess mileage?
If you're a business customer and you've gone over your mileage allowance then again, there is a fee but you could offset it in other costs. The excess mileage charge is considered a service charge. This means that you can offset 100% of this charge against corporation tax, and also 100% VAT can be reclaimed on commercial vehicles and 50% - 100% on cars. We told you - it's not the end of the world! But do be sure to get a good idea of what you perceive your mileage to be before taking out a leasing contract and give the best estimation of your expected miles initially. This can, and often, changes the cost you'd be expected to pay and lower mileage doesn't always mean a cheaper monthly rental.
For further information, do not hesitate to get in touch for free, friendly advice from Commercial Vehicle Contracts.
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