If using a car for work purposes, it’s important to understand the rules on what can be claimed back and how much.
This guide covers everything you need to know about the mileage allowance rules, from the fundamentals of claiming car mileage, to who can claim and the mileage rates for hybrid and electric cars.
What is mileage allowance?
Mileage allowance includes the cost of fuel, road tax, insurance, and general wear and tear for those who use their personal car to make business journeys. Essentially, the mileage allowance is the maximum amount an individual or business can claim for each mile. This is referred to as the ‘Approved Mileage Allowance Payment’ (AMAP) or ‘Mileage Allowance Payment’ (MAP), and operates by reducing a business’s taxable income. Providing the AMAP/MAP limit is not passed, it will not be exposed to taxation.
The only way to receive reimbursement tax-free for business miles is via the approved mileage allowance scheme. It is important to be aware that by providing an employee with a company car or giving them a fixed sum towards fuel that both options will incur taxation.
Journeys that can and cannot be claimed for
It does not really matter whether the car is used frequently or only occasionally for business purposes, it is vital to keep your own records of your mileage and have an understanding of what journeys qualify for tax exemptions, and those that do not. The law says that you must only claim for journeys that are ‘wholly and exclusively’ for business purposes, so a daily commute or personal trips do not count.
Business journeys that can be claimed:
- Travelling between offices or other business premises
- Travelling to a temporary location in order to conduct requisite business. This could be meeting a client or attending a business event, for example.
Business journeys that cannot be claimed:
- Commuting to and from your usual place of work
- Travelling to a location close to your place of work
- Any travel for a private purpose, even where there is an aspect of your work included in the journey, such as running errands or making calls.
Costs such as road tolls and parking charges are generally covered by subsistence expenditure, rather than using mileage allowance.
How much is HMRC mileage allowance?
The same HMRC car allowance applies to every employee, and the amount they can get per mile depends on the type of vehicle they use:
Mileage allowance rate for first 10,000 miles
Mileage allowance rate above 10,000 miles
|Cars & vans||45p||25p|
Using this table, calculating business mileage should be straightforward. You simply multiply the miles travelled by the specific mileage rate for your type of vehicle. So, if you travel 21,000 miles in your car, the mileage deduction for the year would be £7,250 (10,000 miles x 45p + 11,000 miles x 25p).
If you travel with a colleague from your company, the driver can claim an additional 5p per mile, per passenger. So car sharing can prove to be beneficial.
No distinction is made between petrol and diesel vehicles, and it is not possible to claim at a higher rate merely because you have a car with a larger engine. So, if you or your employer pays at the maximum AMAP/MAP rates, the more fuel-efficient your car, the better off you will be
Can businesses set a different mileage allowance?
Although HMRC sets mileage allowance rates, they can be different depending on each individual business and how much each decides to pay their employees. If a business pays back at a lower rate than that stipulated by HMRC, the employee can apply for mileage allowance relief from HMRC at the end of the tax year. For example, if your employer pays 30p per mile, tax relief can be claimed on the 15p difference per mile.
An employer will not have to report anything below the ‘approved amount’ or pay tax, however:
- As stated above, the employee will be able to get tax relief called Mileage Allowance Relief (MAR), on the unused balance of the approved amount.
- An employer can make optional separate reports to HMRC of any unused balances using a scheme called the Mileage Allowance Relief Optional Reporting Scheme (MARORS), however, they must first contact HMRC in order to join the scheme.
However, if a company pays more than the HMRC mileage allowance, the extra is classed as taxable income. So, if your employer pays 55p per mile, 10p will be subject to taxation.
Anything above the approved amount must be reported on form P11D and then submitted to HMRC for each employee who is provided with benefits or expenses. Employers will also need to send form P11D(b) if:
- They have submitted any P11D forms
- They have paid employees’ benefits or expenses via its payroll
- HMRC has asked them to submit the form. This can be submitted either by or email or HMRC will send you the form to complete.
Form P11D(b) informs HMRC how much Class 1A National Insurance an employer pays on all the benefits and expenses they have provided. Employers who have been asked to submit a form P11D(b), can inform HMRC they do not owe any Class 1A National Insurance by filling in a declaration to that effect.
If you are an employer, it is worth setting clear expectations and guidelines for your employees before they begin to use personal vehicles for work, and establish a regular system for reimbursing them, such as using monthly car expenses claim forms, for example.
Reimbursing employees’ mileage claims
It is important that each employee knows what they are required to do in order to get reimbursed for mileage incurred for business journeys. Employers must have evidence of the expenditure, so employees should keep:
- A record of the dates, destination, and purpose of each journey taken
- The number of business miles driven (both separately and cumulatively)
There are apps on the market that simplify this process, which keep track of all travel expenses. It has to be said, business travel management can be particularly time-consuming, and ensuring you have clear timelines and owners will help you to keep on top of things.
Is business mileage treated differently?
Business mileage is an expense that reduces a company’s or sole trader’s profits, and therefore the amount of tax paid at the end of the year.
Sole traders and limited companies can all claim business mileage. Employees claim via their employer and everyone is paid at the set HMRC rates, as set out in the table above. If you are a new business, you may have to pay out expenses before you have made any money. There are two options regarding business expense claims if you are in this position:
- Make a claim once the business has generated sufficient income.
- Introduce your own working capital into the company and then pay yourself back. The input of capital into the business will show in your company accounts as a loan from the director, or as capital introduced by the sole trader to their business and is fully above board in both instances.
Mileage rates for hybrid or electric vehicles
With fuel prices continuing to increase exponentially, many are turning towards hybrid and electric vehicles. But how much can be claimed for mileage under current government guidelines?
While your initial costs might be higher than that of a diesel or petrol car, electric cars are more economical to run, have lower lifetime running costs, and are better for the environment. Electric cars produce fewer emissions than their more conventional counterparts, and some are starting to outperform them too in terms of speed, comfort and handling.
However, there is a minor drawback: the mileage allowance you can claim for using a hybrid or electric car for work purposes.
Although tax-free mileage allowance payments (MAPs) can be used by owners of hybrid and electric vehicles for work journeys, the allowance is the same for all vehicles no matter how they are powered. Employees with hybrid cars can claim the same tax-free AMAPs as petrol and diesel cars.
It is important to note that an employee may receive a taxable benefit in connection with their personal electric car, providing their employer:
- Pays for a vehicle charging point to be installed at their employee’s home
- Provides a charge card allowing access to local authority or commercial charging points
- Pays to lease a battery for the employee’s vehicle.
Because HMRC does not consider electricity to be a fuel, there is no benefit-in-kind charge for employees charging their own vehicles at a workplace charging station.
The mileage rate for electric vehicles as a company car, separate from AMAPs/MAPs, has an advisory electricity rate of 4p per mile. This means that the business can pay the employee 4p per mile for each business mile travelled in the electric car without there being any tax consequences.
Petrol and diesel advisory rates
Advisory Fuel Rates (AFR) are the recommended amounts by HMRC when you are reclaiming the fuel element on business mileage in a company car. These rates are reviewed each quarter and only apply to Standard Rate VAT registered companies and are used to calculate:
- The amount of VAT to be reclaimed on business mileage in a personal vehicle
- How much employers can reimburse their employees for business travel in company cars
- How much employees need to reimburse employers for personal travel in their company car.
From 1 December 2022
|Engine size||Petrol — rate per mile||LPG — rate per mile|
|1400cc or less||14 pence||10 pence|
|1401cc to 2000cc||17 pence||12 pence|
|Over 2000cc||26 pence||18 pence|
|Engine size||Diesel — rate per mile|
|1600cc or less||14 pence|
|1601cc to 2000cc||17 pence|
|Over 2000cc||22 pence|
Owners of hybrid cars can claim at the petrol or diesel rate.
Fully electric cars are calculated using HMRC’s advisory electric rate at 8 pence per mile.
As stated above, electricity is not classed as a fuel for car fuel benefit purposes.
Using the AFR table above, a calculation can be made around what percentage of the business mileage rate applies to fuel and the VAT on that element.
Car mileage allowance FAQs
What is the mileage rate for UK?
For cars and vans, the first 10,000 miles can be claimed at 45p per mile, motorcycles at 24p per mile, and bicycles can be claimed at 20p per mile, although only limited companies can claim this. Over 10,000 miles, the rate is 25p per mile, 24p per mile, and 20p per mile, respectively.
What does the 45p mileage allowance cover?
The mileage allowance covers the costs of buying, maintaining, and running the vehicle, such as fuel, oil, servicing, repairs, insurance, car tax, and the MOT. It is also intended to cover any depreciation in value of the vehicle.
Do companies have to pay 45p per mile?
Most employers pay the maximum HMRC mileage allowance of 45p per mile (for the first 10,000 miles), but they do not have to do so and can set their own figure. If the employer pays below the maximum, an employee can apply to HMRC for Mileage Allowance Relief (MAR) at the end of the tax year.
What is the business mileage rate for electric cars?
If your company car is electric, the advisory rate has been set at 8p per mile. If you are using a privately owned electric car, you can claim 45p per mile for the first 10,000 miles, and 25p thereafter.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.
Before acting on any of the information contained herein, expert professional advice should be sought.