Current mileage allowances and rates for various vehicles

When your employee is using their own car for business journeys, you can pay them Mileage Allowance Payments (MAPs) to cover some of the vehicle expenses associated with work journeys. This standard mileage rate is set by HM Revenue and Customs (HMRC). HMRC mileage rates are tax-free approved amounts. The same mileage rate applies to every employee, no matter what position they hold or whether they are employed on a full-time, part-time, contract or freelance basis.

However, the rate varies depending on what type of vehicle is used, and for company cars, reimbursement rates may also depend on engine size (company cars are subject to different rules than personal vehicles).

Rates can also vary depending on how many miles your employees have completed during a single tax year. No matter what type of vehicle the employee is using, only business-related mileage is eligible for reimbursement – personal journeys, such as commuting from home to a permanent office, do not qualify.

The business mileage rate changes for cars and vans after the first 10,000 miles of travel have been completed. The standard allowances for up to 10,000 miles and after 10,000 miles are outlined below.

Approved mileage rates for the first 10,000 business miles in a single tax year:

• Cars and vans: 45p
• Motorcycles: 24p
• Bicycles: 20p

While the same rate applies to both traditional and electric cars, electric cars have a specific flat rate of 7p per mile for electricity costs.

Approved mileage rates for each business mile made over 10,000 in a single tax year:

• Cars and vans: 25p
• Motorcycles: 24p
• Bicycles: 20p

Calculating business mileage is a simple process. You or your employee simply multiply the mileage rate for your vehicle by the miles travelled. The flat rate per mile covers all vehicle costs, and if you use the flat rate, you cannot claim separately for individual vehicle expenses like insurance or road tax. It’s also worth taking into account that your employees can claim an additional 5p per business mile per extra passenger if they are carrying a fellow employee from the same company in a car or van.

Many employees use their own car for work journeys, and the mileage allowance is designed to reimburse them for business travel. The amount you can claim depends on the mileage allowance set by HMRC, and you’ll need to estimate your vehicle’s total annual mileage to determine business use. The flat rate method is different from claiming the actual cost of vehicle expenses, and once you choose a method for a vehicle, you cannot change it later.

When employees can claim mileage allowance vs when they can’t

Working out whether journeys are counted as business-related can sometimes be a confusing process. Under HMRC rules, only certain trips qualify for mileage allowance. Trips to and from the regular workplace are considered commuting and do not qualify. The following guidance is provided by HMRC to help you figure out whether or not to reimburse an employee’s journey.

Journeys that can be claimed as business-related are required to fall into one of the following categories:

1. The employee is travelling from one office to another
2. The employee needs to be somewhere other than an office to carry out their job
3. The employee is required to travel to a specific location temporarily, for business reasons. For example, meeting a client or attending an event.

Journeys cannot be claimed as business-related if they fit into any of the following categories:

1. The journey is part of a daily commute between a private residence and your company’s office or a substitute office (e.g. a co-working space). This rule applies even if your employee usually works remotely and is suddenly required to visit the office.
2. The journey is short and to a nearby location.
3. It’s primarily a private journey with one or two work-related stops – the main purpose of the trip must be business-related.

Any other travel expenses incurred while your employee uses their vehicle for business, including parking charges or paying road tolls, are not included in the business mileage allowance. These types of expenses are treated separately and can be expensed following the standard method.

Business mile tracking and logging

To support any future mileage claims, aim to record precise details for each employee journey, including dates, the starting and ending addresses, miles travelled and the purpose of the journey. This level of detail not only helps in calculating the correct amount using HMRC mileage rates, but also protects against potential penalties for incorrect or unsupported claims. You can keep a dedicated mileage log on paper or use a digital service like an app to track this information.

HMRC vs employer reimbursement

Although HMRC has a set rate for mileage allowance, this may not be the actual rate you pay out. If your company pays employees back at a lower rate than the flat fees, employees can apply for a mileage allowance relief from HMRC. The allowance relief makes up the difference at the end of the tax year. For instance, if you choose to pay your employees 35p per mile for driving a car, your employee can claim tax relief on the 10p difference per mile. Equally, if you choose to reimburse more than the HMRC allowance, then the excess is taxed as a benefit in kind and is subject to income tax and national insurance contributions.

If what you pay your employees exceeds the approved amount, then you:

• Report it on form P11D, the form that covers all benefits paid to them during the year

AND

• Add anything above the ‘approved amount’ to their pay and deduct taxes from it as normal.