How to ensure grey fleet compliance with HMRC rules

Do your employees drive for business using personal vehicles? Then you’re managing a so-called grey fleet. 

While offering flexibility and lower capital costs, grey fleets come with compliance responsibilities, that pose risks if not managed correctly. Employers must maintain duty of care, ensuring proper insurance, maintenance, and driver licensing, as well as adhere to HMRC requirements when it comes to reimbursing business mileage. 

HMRC expects businesses to be able to show that mileage reimbursements are correctly documented and apply only to work-driving. Incomplete or inconsistent mileage records can trigger an audit and put your organisation at risk of non-compliance. 

In this article, you’ll learn more about the HMRC mileage requirements and how best to meet them with the help of digital tools and a policy in place. Together, they’ll help close any gaps in your documentation and make your grey fleet management audit-proof. 

Legal obligations for grey fleet businesses

Even though your employees use their own vehicles for work, and not company-leased or owned, you’re obliged to ensure that any business driving at your organisation is conducted in a safe, compliant, and properly documented manner. 

This includes regular driver and vehicle checks for: 

• Valid driver’s licences
• Up-to-date maintenance, incl. MOT 
• Insurance that covers the business use of a vehicle
• Consistent mileage logs that clearly differentiate between personal and business use (if your reimburse mileage)

The risk assessment guide and checklist will help shed light on the laws you must obey regarding compliance, tax, and duty of care to help protect your business and employees. 

In the next sections, we’ll focus on complying with HMRC requirements for mileage reimbursement documentation and audit-proof recordkeeping. 

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Mileage log requirements

Note: The section below applies, if you reimburse your employees for mileage.

If your employees use their personal vehicles for business travel and you reimburse their mileage, HMRC places clear responsibilities on both the employer and the employee:

• Employees must accurately record their business journeys
• Employers must retain compliant records to justify mileage payments as a business expense

This is an area where many organisations feel uncertain – not just about the rules themselves, but also about how to communicate them clearly to employees and ensure they’re consistently followed.

Grey fleets can raise particular compliance concerns because you don’t own or control the vehicles. Business and private journeys can easily get mixed up, and manual mileage logs are prone to errors, omissions, and late submissions if expectations aren’t clearly set.

What’s required of employees

Employees are responsible for keeping accurate, trip-level mileage records. As stipulated by HMRC, proper documentation must meet mileage log requirements that include: 

The date of the journey
If it’s personal or business-related 
The start and end points with a full address, including postcodes
The total number of miles driven 

What’s required of you as the employer

From the employer’s perspective, mileage logs are evidence.

To offset mileage payments as a business expense, organisations must be able to present complete and accurate mileage documentation if requested. This means:

• Ensuring employees understand what they need to record and why
• Applying the same standards consistently across teams
• Retaining mileage records for an appropriate period (in line with HMRC’s requirements) 

If records are incomplete, inconsistent, or missing, in some cases mileage reimbursements may be reclassified as taxable pay.

Personal vehicle, company car, or PCP leasing: Understanding ownership types and compliance differences 

Not all business driving is treated the same from a tax and compliance perspective. HMRC expectations vary depending on who owns the vehicle and how it’s provided to the employee.

Clear mileage records help demonstrate that you’re applying the right treatment in the right context.

Below is a practical breakdown of the most common ownership types and what compliance typically looks like for each.

Employee-owned vehicles (grey fleet) 

As mentioned above, this fleet type is most scrutinised by HMRC, where mileage reimbursement is only tax-free if supported by accurate, consistent documentation. 

In this scenario, employers typically reimburse employees for business mileage using the HMRC-approved Mileage Allowance Payments (MAPs) - either as a lump sum payment covering vehicle expenses, or using the mileage reimbursement rate. 

To avoid having your mileage payments reclassified as taxable, your employees must be able to show:

• Clear separation of business mileage vs. commuting or private journeys
• Mileage logs showing date, route, distance, and business purpose of every journey
• Evidence that both the driver and the vehicle are eligible (licence, insurance incl. business use, MOT)

As a grey fleet employer, you have no control over the vehicles themselves, so documentation really is key.

Also read: HMRC Mileage Guide

Company cars

Equally, if private use is not permitted and company cars are restricted to business journeys exclusively, documented proof of drives taken will be required. From the employee’s perspective, this is also an avenue to BiK tax exemption, as HMRC will need to see evidence of 0% private use of the company car.  

If you own the car and provide it to the employee as part of your benefit scheme, it’s considered a Benefit-in-Kind. 

Benefit-in-Kind (BIK) when private use is permitted

If an employee is allowed to use a company car for private journeys (including ordinary commuting), HMRC generally treats this as a taxable benefit. This is known as the BiK tax and is calculated primarily based on:

• The car’s list price
• Its CO₂ emissions
• The applicable BIK percentage for the tax year

If you provide company cars, proper mileage records are critical for compliance and risk management. 

Let’s unpack some common use cases in an instance of providing company cars, specifically in relation to BiK. 

Accurate, consistently documented mileage logs can help employers:

• Demonstrate the extent of business vs. private use, as per internal policies, and in case of an HMRC audit
• Provide evidence of situations where a car is used predominantly for business, with prohibited or limited private use
• Show proof that a BiK exemption has been correctly granted (if the private use is entirely incidental)

Other common company car use cases

Beyond BIK, organisations also use mileage records to:

• Allocate costs to clients, projects, or departments
• Support fuel reconciliation via advisory fuel rates
• Maintain a consistent audit trail across mixed fleets (company cars + personal vehicles)

Many organisations track business mileage across all vehicle types, not just employees’ own, to maintain consistency, ensure data transparency, and stay audit-ready. 

Also read: Employer’s guide to car allowance vs company cars

Personally leased vehicles (PCP) 

Commonly, personally leased cars (or PCP, short for Personal Contract Leasing) receive the same tax treatment as employee-owned vehicles. 

Since the lease is in the employee’s name, not the company’s, there’s an overlap with employee-owned vehicles when it comes to insurance coverage. As the employer, you must confirm insurance covers business use (many personal lease policies default to private use only). 

As for mileage, any business journeys taken in the leased vehicle may be reimbursed using MAPs (Mileage Allowance Payments). In order to justify a tax-free treatment of any mileage reimbursement, records that clearly showcase qualifying business journeys are necessary. 

Without logs, reimbursements risk being treated as taxable income.

The risks of poor recordkeeping

Increased audit exposure in mileage reimbursement

Mileage reimbursement can be an audit trigger, as many employees claim mileage, the payments are tax-free, and many organisations still rely on manual logs (which often leave gaps).

HMRC has low tolerance for weak records; or rather, they tend to attract attention as they might signify an underlying lack of control. The likelihood of an audit is therefore higher if an organisation already appears to lack a solid foundation when it comes to grey fleet compliance. 

Risk of having mileage reimbursement reclassified as taxable pay 

When mileage claims cannot be adequately supported with documentation, HMRC may decide that reimbursements do not qualify for tax relief.

This risk is especially high when your mileage records look like estimates (rounded up numbers), logs are repetitive (could be seen as faked), and the split between business and personal is vague.

Consequences can include:

• Mileage payments being treated as taxable income for the employee
• Backdated PAYE and National Insurance liabilities for the organisation
• Employer exposure for underpaid tax, not just the employee
• Triggering an audit

Audit fail: Example scenario

Payroll delays and internal friction

Poor recordkeeping doesn’t just create tax risk – it can also spark operational chaos. 

Common internal issues include:

• Late or rejected mileage claims
• Delays to payroll processing
• Increased back-and-forth between admins, finance, and employees

Over time, this often leads to workarounds that further weaken tax compliance, such as accepting incomplete claims just to keep payroll moving.

What your grey fleet compliance policy should cover

A clear policy protects the business and helps define the division of responsibilities around business driving at your organisation, ensuring employees know what documentation they should provide and how to log mileage correctly.

At a minimum, a grey fleet policy should define:

• Driver eligibility
• Licence requirements
• Insurance requirements (including business use)
• MOT and vehicle condition standards (safety and servicing requirements)
• Mileage rules, as dictated by HMRC (what counts as business mileage, rules around commuting, etc.) 
• Required log details (HMRC-stipulated and organisation’s own) 
• Reimbursement process
• Approved mileage rates 
• Reporting frequency

We’ve drafted a customisable grey fleet policy template you can download and tweak to match your internal processes and regulations. 

How to stay compliant and use automation to your advantage

Pen-and-paper & spreadsheet logging vs. automatic software

Manual methods (paper logs, spreadsheets) often fail because they rely on memory, manual calculations, and having to chase drivers for missing mileage data. 

Automated mileage solutions, such as a mileage-tracking app, help reduce the risk of incomplete mileage documentation while also making an often chaotic, time-consuming process easier and more convenient. 

Learn more about grey fleet management software in our other guide. 

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