A mileage allowance is a reimbursement paid to individuals who use their private vehicles for business travel. In the UK, these payments are treated as out of pocket expenses handled under the Approved Mileage Allowance Payment (AMAP) statutory framework. Governed by Part 4, Chapter 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), mileage allowance payments compensate drivers for vehicle wear, fuel, road tax, and insurance without creating an unnecessary tax liability.
What is mileage allowance?
A mileage allowance payment is any reimbursement made by a business to an employee for travel expenses incurred while using their own vehicle on company business. Rather than tracking individual petrol receipts, servicing bills, and vehicle insurance policies, businesses often use a flat mileage charge per mile. This mechanism simplifies operating expense tracking for finance teams while keeping reimbursements consistent for employees.
HMRC establishes statutory AMAP thresholds to determine how much money an employer can reimburse before tax applies. When reimbursements stay within these statutory rates, they are exempt from both PAYE income tax and Class 1 National Insurance contributions. Any amount paid above statutory limits creates taxable earnings, whereas reimbursements paid below the threshold enable the employee to seek tax relief on the difference.
HMRC approved mileage allowance payment rates
The UK government sets standard approved mileage allowance payment rates based on the type of vehicle used for work travel. These statutory figures reflect overall vehicle running costs over time rather than fuel prices alone.
Rates for cars, vans, motorcycles, and bicycles
HMRC publishes approved mileage allowance payment rates outlining how much employers can pay tax-free per business mile. In July 2023, the RAC Foundation highlighted that the 45p per mile car rate had been frozen for more than a decade since 2011. For the latest statutory approved rates across cars, vans, motorcycles, and bicycles, readers should consult the current schedules on GOV.UK.
HMRC also publishes distinct approved rates for other vehicle types, such as motorcycles and bicycles. Readers should consult the latest statutory schedules on GOV.UK to review the current approved figures for non-car travel.
Passenger payments
Under Section 233 of ITEPA 2003, employers can pay an additional tax-free passenger rate of 5p per mile per passenger when an employee carries fellow colleagues in a car or van on a business journey. This rate encourages carpooling on business trips.
The passenger allowance applies solely when carrying fellow employees on qualifying journeys. Journeys carrying clients, family members, or non-colleagues do not qualify for the additional 5p per mile passenger payment.
How mileage allowance works for employees and employers
Employers are not legally mandated to match HMRC rates. AMAP rates define statutory tax-free ceilings, not compulsory reimbursement minimums. An employer can contractually decide to pay the exact statutory rate, pay a lower rate, or provide no vehicle reimbursement at all.
However, employers must ensure that unreimbursed vehicle expenses do not reduce an employee's effective earnings below legal thresholds. Under Regulations 12 and 13 of the National Minimum Wage Regulations 2015, out-of-pocket travel costs incurred in connection with employment reduce total remuneration when calculating National Minimum Wage compliance.
When employers reimburse mileage above HMRC approved rates, any excess amount represents taxable earnings subject to tax and National Insurance rules. Employers should consult official HMRC employment income guidance for the specific payroll and reporting requirements on excess payments.
Claiming mileage allowance relief when under-reimbursed
If an employer pays less than the statutory approved amount or nothing at all, an employee can claim Mileage Allowance Relief directly from HMRC on the difference under Section 231 of ITEPA 2003.
Mileage Allowance Relief operates as a deduction that reduces taxable employment income by the amount of the allowable shortfall, thereby reducing the employee's tax liability according to their marginal tax rate.
Employees can claim backdated relief for up to four prior tax years. Depending on the size of the total annual expense claim, claims can be submitted through standard HMRC claim forms or via a Self Assessment tax return. Employees should check GOV.UK guidance to confirm current filing thresholds.
Mileage allowance rules for sole traders and the self-employed
Self-employed individuals and sole traders also account for business travel costs on their annual tax returns. Motoring deductions generally follow simplified vehicle expense flat rates or an apportionment of actual vehicle running costs.
If a sole trader claims actual costs, they calculate deductible expenses by totalling actual running expenses, such as insurance, servicing, and fuel, and apportioning those costs between business and personal usage. Readers should consult official HMRC guidance on simplified expenses to confirm vehicle eligibility and rules on switching calculation methods for a vehicle.
Which journeys qualify as business travel?
To qualify for tax-free mileage allowances, travel must satisfy statutory business travel criteria under tax guidelines. Official HMRC travel guidance provides specific rules on determining what constitutes a qualifying business journey versus private travel.
HMRC strictly excludes ordinary commuting from qualifying business travel. Ordinary commuting encompasses travel between an employee's home and their permanent workplace. Any reimbursement paid for normal commuting is treated as taxable pay.
Where employees travel to sites other than their regular base, tax treatment depends on how HMRC classifies the location. Businesses and employees should consult official HMRC guidance on employee travel to review the criteria for temporary workplaces and qualifying business travel.
How to record and claim mileage expenses
Proper documentation is essential when claiming mileage for work travel. Maintaining comprehensive trip records allows organisations to verify business journeys and support internal accounting reviews.
As standard best practice, organisations often recommend recording key trip details such as the date, departure and destination points, the specific business purpose, miles travelled, and whether any eligible colleagues were carried as passengers. Keeping clear logs also helps finance departments review claims quickly against company travel policies.
Where businesses seek to recover input tax on fuel expenses, additional rules apply. To reclaim VAT on mileage payments, businesses must isolate the fuel element, for which HMRC Advisory Fuel Rates provide an acceptable guidance benchmark rather than a mandatory exclusive method. Organisations should consult official HMRC VAT guidance to confirm current fuel receipt retention and calculation requirements.