PUBLISHED JUL 28, 2020 • 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. Keep reading to learn about the general 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.
If, as an employee, you incur business mileage using your private vehicle, you can receive Mileage Allowance Payments (known as MAPs) from your employer.
A mileage allowance is considered to be one of the following:
The mileage allowance payments cover the following vehicle expenses:
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 goes by can usually be found in your employment contract.
The current advisory mileage allowance rates per mile are:
If you are paid the advisory rates, HMRC considers this payment to be an “approved amount”. If you receive less than the advisory amount, you are entitled to tax relief.
Read more about current and historical mileage rates here.
Mileage allowance is only taxed if you are paid more than the approved mileage amount. The below examples should help in understanding the rules here:
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.
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).
If your employer reimburses you at a higher MAP rate, that extra reimbursement will be considered personal benefits and will be taxed as income through PAYE.
If you often take passengers with you when driving for business, your employer may choose to reimburse you for the associated costs. Passenger payments are available so long as your travel is for work purposes, and your passenger is also travelling for work purposes. HMRC has set an approved rate of 5p per mile per passenger.
Keep in mind the following:
Your MAP will be based on the mileage you have driven, multiplied by your employer’s mileage rate.
Here’s an example:
Your reimbursement for the month can be worked out with the below formula:
[business miles x rate = reimbursement], or 500 x 0.40 = £200
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:
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
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
You will need to prove to your employer that you have driven business mileage for each month to receive MAP. You can do this by providing a mileage log to your employer or the firm’s accountant.
The mileage log, as stated by HMRC, should contain:
Keep in mind that the MAP only covers costs of:
Read more about what HMRC considers to be business travel.
You have several options available to help you track your mileage - common ones include a paper logbook, a spreadsheet, and an automatic digital tracker.
Paper logbooks are available at many newsagents and similar stores. If you wish to use a spreadsheet, HMRC has created a digital template that you can use in Excel or a similar program. To complete this accurately, 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 take a lot of business trips.
If you choose to track your miles automatically, you have the option of selecting a mileage tracker app for your mobile - 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 is also HMRC compliant. 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.
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.
We've written up a guide to show you how to claim mileage through HMRC - skip ahead to Mileage Allowance Relief here.
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.
Relevant motoring expenditures (RME) are defined as motoring-related payments made to an employee including:
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:
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 :)
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.