2021 mileage allowances and rates for various types of vehicles
When your employee is using their own vehicle for business journeys, you can pay them Mileage Allowance Payments (MAPs) to cover some of the costs associated with travel. This standard mileage rate is set by HM Revenue and Customs (HMRC), the tax authority of the UK government. HMRC mileage rates are tax-free approved amounts. The same mileage rate applies to every employee, no matter what position they hold. However, the rate varies depending on what type of vehicle is used. Also, rates can vary depending on how many miles your employees have completed during a single tax year. The 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
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 need to multiply the mileage rate for your vehicle by the miles travelled. It’s also worth taking into account that your employees can claim an additional 5p per business mile per additional passenger, if they are carrying a fellow employee from the same company in a car or van. Related: 21 Free Employee Benefits: A Guide for Managers
When can employees claim mileage allowance vs when they can’t
Working out whether journeys should be counted as business-related can sometimes be a confusing process. Fortunately, HMRC have set out guidance on when trips should be counted as business-related and therefore are able to be reimbursed. The following guidance is provided by HMRC and is a good method of figuring out whether a journey should be reimbursed. Journeys that can be claimed as business-related should fall into either of the following categories:
- The employee is travelling from one office to another.
- The employee needs to be somewhere other than their usual workplace to carry out the job. They are required to travel to a temporary location to conduct necessary business. For example, meeting a client or attending an event.
Journeys cannot be claimed as business-related if they fit into any of the below categories:
- The journey is part of a daily commute between an office and a private residence, or any other place that’s not a permanent office.
- The journey is short and to a very close location.
- It is a private journey with one or two work-related stops. The primary purpose of the trip must be business-related.
Any other travel expenses incurred whilst your employee uses their vehicle for business, including parking charges or paying road tolls, are not included in the allowance. These types of expenses are treated separately from mileage allowance and should be expensed following the normal method.
HMRC vs employer reimbursement
Although HMRC has set the rate for mileage allowance, rates can differ depending on how much your company chooses to pay back to your employees. If your company pays back at a lower rate, 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, the extra payment will be subject to taxation.
If what you pay your employees exceeds the approved amount, then you must:
- Report it on form P11D, the form that covers all benefits paid to them in the year;
- Add anything above the ‘approved amount’ to their pay and deduct and pay tax on it as normal.
