HMRC mileage rates explained: How to stay compliant and keep employees on the road
If your employees regularly travel for your company, you need to make sure they’re not left paying travel expenses out of pocket.
As well as providing them with the right per diem travel expenses, you can also reimburse them for the miles they travel in their own vehicles using HMRC’s mileage rate system.
This can be important for your employees’ experience. Your travellers should feel like they’ve been given fair compensation if they use their vehicle on behalf of your company. And because Mileage Allowance Payments — or MAPs — are tax-free (up to a set limit), it won’t cost your business as much as you might think.
Read on for answers to the most commonly asked questions about mileage reimbursement for business travel.
What are HMRC mileage rates and how do they work?
HMRC mileage rates are specifically for employees who use their own vehicles for business purposes. The rate determines what payment is appropriate to cover the cost of petrol (for automobiles) and contribute to running and maintaining a vehicle accumulating wear for business reasons.
As mentioned, these payments are called Mileage Allowance Payments.
Employers can pay employees an approved amount of MAPs each year without reporting it to HMRC. These payments are not considered taxable income.
It’s worth noting that employers have no legal obligation to pay mileage allowance payments. And if they do decide to reimburse employees for their mileage, they don’t have to pay the exact HMRC mileage rates listed below. They can offer a lower mileage rate amount.
However, if employers choose to exceed HMRC-approved mileage rates, both employers and employees have to pay tax on the excess.
You can take a look at the rates by visiting the UK government website. But for easy reference, we’ve also included them as they stand at the time of this writing.
What is the current mileage reimbursement per mile?
HMRC’s mileage allowance rates are set according to the vehicle your employee uses and how far your employee has travelled in a year.
Rates are higher for the first 10,000 miles an employee travels annually, with lower rates for anything above that figure.
At the time of writing, they are as follows:
For the first 10,000 miles:
- Cars & vans: 45p/mile
- Motorbikes: 24p/mile
- Bikes: 20p/mile
Miles after the first 10,000:
- Cars & vans: 25p/mile
- Motorbikes: 24p/mile
- Bikes: 20p/mile
Remember: these are the highest reimbursement rates that can be paid tax-free. If a company reimburses more than the approved mileage rates, both employers and employees will pay tax on the excess amount.
While these mileage rates haven’t changed for over ten years, we recommend reviewing them on the UK government website as well for the most up to date information.
What travel qualifies for mileage allowance payments?
Not all journeys are eligible for mileage allowance payments. A trip has to fit into one of these categories:
- Travel between a permanent workplace and temporary work, like to an off-site meeting
- Travelling between temporary workplaces, like visiting clients
- Travel between two workplaces owned by the same employer
- If an employee works from home, travel to a workplace due to the requirements of the job
You can also offer MAPs for carpooling. In this scenario, two or more employees (all working for your firm) must share a car or a van and make a business journey together.
As you’ve probably gathered, this means that an employee’s regular commute from home to work isn’t eligible for mileage allowance payments. And it’s worth reiterating that all of these scenarios involve an employee using their own vehicle for business-related travel. If your employee uses a company car, Advisory Fuel Rates will apply, rather than MAPs.When do mileage rates need to be reported to HMRC?
Under the HMRC mileage rate, you can claim up to 10,000 miles.
You can still make MAPs to your employees above this limit (at HMRC-approved mileage rates). However, any payments over the 10,000-mile limit are classed as benefits.
This means you and your employee have to report the payments to HMRC using a P11D form to tax the payments through PAYE.
What is mileage allowance relief?
If you decide to pay employees less than the HMRC-approved mileage rates, employees can claim tax relief on the difference. This is known as mileage allowance relief.
You set your company MAP rate at 40p per mile. Since the top rate is 45p, your employees are entitled to claim 5p per mile in tax relief.
You don’t pay any MAP to employees. They can then claim the full 45p per mile in tax relief.
How do you apply for mileage allowance relief?
To make a mileage allowance relief claim, employees need to provide accurate records of business mileage, including:
- The start point and end point of all trips
- The dates of each trip
- The distance travelled
- The amount of mileage allowance already received from an employer
Employees can use form P87 on the HMRC website to claim this tax relief as long as the expense claim is under £2,500. In cases where the total expense claim exceeds £2,500, an employee has to fill in a Self Assessment tax return.
Can passengers claim any reimbursements?
Passenger payments are related to employee carpooling. These payments encourage car-sharing and benefit the environment.
You can pay 5p per mile to passengers who travel for business purposes in a colleague’s vehicle.
Just like MAPs, this payment is optional, tax-free and doesn’t need to be reported to HMRC.
However, unlike standard MAPs, passengers aren’t eligible for mileage allowance relief if an employer chooses to pay them less than the 5p rate.
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Cara Meglio is a Copywriter at Hotel Engine. She assists with content creation, researching and writing articles to help businesses improve their travel experience and discover helpful solutions with Hotel Engine. Cara has a passion for travel of all types. Based in Denver, CO, Cara loves exploring the Mountain West as well as international destinations.