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26 February, 2021 - 10 min read

Mileage allowance in the UK for employees

UPDATED JAN 10, 2022 • 6 MIN READ

This article is for employees using their own vehicles for work who are trying to make sense of HMRC’s mileage allowance laws and how to apply them.

This article focuses on the general mileage rules you should be aware of when it comes to mileage allowance, rates and what is taxable.

If you are self-employed, skip to our guide on mileage allowance for the self-employed.

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General rules on mileage allowance

If you incur business mileage using your private vehicle as an employee, you can receive Mileage Allowance Payments (MAPs) from your employer for your mileage expenses.

A mileage allowance is considered to be one of the following:

  • Monthly payments based on your business mileage.
  • Monthly payments based on a reasonable business mileage estimation.
  • A monthly lump sum covering vehicle costs based on reasonable estimates of your business mileage; or
  • A combination of the above - e.g. a monthly lump sum for vehicle expenses and a fuel rate per mile at a lower reimbursement amount.

What’s included in a MAP?

The mileage allowance payments cover the following vehicle expenses:

  • Fuel
  • Servicing and repairs
  • Maintenance
  • Depreciation
  • Insurance and road tax

What isn't included in a MAP?

  • Road, bridge, tunnel tolls
  • Parking fees
  • Congestion charges
  • Speeding or parking fines, other road offences

Does HMRC guide employers on how much a MAP should be?

HMRC provides Advisory MAP (AMAP) amounts for employers, meaning they are not obligatory. Your employer might choose to reimburse you at a lower or higher rate and the rate that your employer pays out can usually be found in your employment contract. 

What is reasonable car allowance in the UK? 

The current advisory mileage allowance rates per mile are:

  • 45p for cars and vans for the first 10,000 miles. After 10,000 miles, the rate changes to 25p per mile.
  • 24p for motorcycles regardless of miles driven.
  • 20p for bicycles regardless of miles.

If you are paid the advisory rates, HMRC considers this payment to be an “approved amount”. If you receive less than the advisory amount from your employer, you are entitled to tax relief.

Read more about current and historical mileage rates here.

Is my mileage allowance taxable?

The mileage allowance you receive is only taxed if you are paid more than the approved mileage amount. The below examples should help in understanding the rules here:

I am paid precisely the approved amount

When you are reimbursed with the approved amount for mileage, the whole sum goes directly to you and your employer has nothing to declare to HMRC.

I am paid less than the approved amount

If you are paid less than the approved amount your employer has nothing to declare to HMRC, you receive the whole sum, and you will be able to claim Mileage Allowance Relief (MAR).

I am paid more than the approved amount

If your employer reimburses you at a higher MAP rate than the one set by HMRC, that extra reimbursement will be considered personal benefits and will be taxed as income through PAYE.

I occasionally have to drive colleagues for work - can I claim an additional amount for this?

You can receive reimbursement by your employer if you take fellow employees as passengers with you when driving for business. Passenger payments are available so long as both you and your colleague are travelling for work purposes.

HMRC has set an approved rate of 5p per mile per passenger.

Keep in mind the following:

  • The reimbursement applies only if you take passengers in a car or a van.
  • If you are paid up to 5p per mile per passenger, the sum is tax-free. Anything over 5p is taxable as a part of your income.
  • It’s important to note that passenger payments can only be paid by your employer, not HMRC. Unlike general mileage, there is no Mileage Allowance Relief available if an employer chooses not to make passenger payments, or pays at a lower rate than 5p per mile per passenger.

What are the requirements to receive a mileage allowance?

Your MAP will be based on the mileage you have driven, multiplied by your employer’s mileage rate.

Here’s an example:

  • You have driven 500 miles this month and your employer reimburses you at 40p per mile.

Your reimbursement for the month can be worked out with the below formula:

[business miles x rate = reimbursement], or 500 x 0.40 = £200 

What if I use more than one vehicle for work?

It doesn’t matter if you use more than one vehicle (of the same kind) for work––mileage is calculated and reimbursed all together. Here’s are two examples:

  • You drive two cars for the same job, driving 3000 miles with Car One and 6000 miles with Car Two. Your employer uses HMRC's AMAP rate of 45p per mile.

Since the total mileage does not exceed 10,000 miles, you can be reimbursed at 45p per mile for your total mileage.

Once again, using the above formula of [business miles x rate = reimbursement], your mileage calculation is 9,000 x 0.45 = £4,050 

  • Alternatively, you have driven 5000 miles with Car One and 6000 with Car Two. Your employer still uses HMRC's AMAP rate of 45p per mile up to 10,000 miles, and 25p per mile for additional miles.

Based on the rules above, you can be reimbursed at 45p for the first 10,000 miles, while the remaining 1,000 miles can be reimbursed at 25p. You simply follow the above formula twice:

[10,000 x 0.45] + [1,000 x 0.25] = £4,750 

Do I need to provide records to receive a MAP?

You will need to prove to your employer that you have driven business mileage for each month to receive MAP. You can do so by providing a mileage log to your employer or the firm’s accountant.

The mileage log, as stated by HMRC, should contain:

  • the date and purpose of your trip
  • distance travelled
  • start and end address of each work-related trip (including postcodes)

Keep in mind that the MAP only covers costs of:

  • Travel between your permanent workplace and your temporary work (e.g. visiting clients or suppliers)
  • Travelling between temporary workplaces
  • Travel between two workplaces in the same employment
  • Travelling from home to another workplace if “home” is your permanent workplace due to the requirements of the job

You can't claim mileage on:

  • Ordinary commuting to and from work isn’t considered a business trip
  • Private mileage 

Read more about what business travel is according to HMRC.

What’s the best way to record my miles?

You have the following options for how to track your mileage - a manual input log book, a spreadsheet or an automatic digital tracker.

You can choose to input all your business trips manually in paper format or a digital spreadsheet. In this case, you will have to spend time inputting the correct information every day you have had business trips so it is as accurate as possible. The process can get quite tedious if you often travel for work. Paper logbooks are available at many newsagents and similar stores.

If you choose to track your miles automatically, you have the option of selecting a mileage tracker app for your mobile phone - there are quite a few for both iOS and Android devices. They track your mileage automatically through GPS while you are driving. Our app, Driversnote, helps you track your business travel and provides HMRC compliant mileage reports. Choosing an app removes the hassle of remembering details and spending time inputting information manually or having to remember details of every trip you take. 

How to claim mileage allowance from HMRC

If your employer pays you less than the approved mileage allowance, you are entitled to Mileage Allowance Relief (MAR) in the form of tax deductions on the outstanding MAP. If you are self-employed, you should multiply the number of miles by the flat rate and submit a claim for the sum. If you don't uze the HMRC rates, you'll have to claim the total amount for the costs of buying and operating the car, such as gas and insurance. If you are an employee, the company mileage allowance is calculated by multiplying the miles in each year by the specified rate per mile. You can use our mileage calculator to estimate your allowance or use the Driversnote app directly for generating compliant mileage allowance reports. 

We've written up a guide to show you how to claim mileage through HMRC - skip ahead to Mileage Allowance Relief here.

National Insurance scheme

Besides the general rules on mileage allowance, you should be aware of the National Insurance (NI) scheme that may affect payments from your employer on your vehicle expenses.

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Relevant motoring expenditures

Relevant motoring expenditures (RME) are defined as motoring-related payments made to an employee including:

  • Mileage Allowance Payments
  • Payments that would be MAP paid to any other person for your benefit (e.g. if your employer pays your vehicle maintenance bill directly to the car service)
  • Any other payments that are made towards the use of your vehicle for business purposes

Qualifying Amount

The National Insurance scheme covers RMEs and has a “Qualifying Amount” that, if surpassed, will be taxed through the Class 1 National Insurance.

The qualifying amounts are as follows:

  • 0.45p per business mile for cars and vans
  • 0.24p per business mile for motorcycles
  • 0.20p per business mile for bicycles

Read more about the qualifying amount.

If the RMEs are lower or equal to the Qualifying amount, your employer has nothing to declare and no National Insurance to pay. If the RMEs are higher than the Qualifying Amount, the excess is added to your earnings when calculating Class 1 National Insurance through payroll. There is no tax relief for the NI scheme.

 

That's it for our guide on the basics of reimbursing mileage for employees in the UK. We hope we've been of assistance :)

Happy tracking! 

 

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This material has been prepared for general informational purposes only and is correct at the time of publishing. It should not be taken as professional advice from Driversnote. We recommend seeking independent legal, taxation, or financial advice from a professional to check how this information relates to your own circumstances.

How to automate your mileage logbook

Manually filling out your logbook can get tedious - see how to automatically track trips for your mileage reimbursement or deductions.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon for, legal, tax or accounting advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal, tax or accounting advisor.
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