A mileage rate is a fixed reimbursement amount paid per mile to compensate employees when they use their personal vehicles for qualifying business travel. In the UK, this statutory framework is known as Approved Mileage Allowance Payments (AMAP), managed by HM Revenue and Customs (HMRC). Using a standard mileage rate simplifies expense management, eliminating the need to record every individual fuel receipt, oil change, or repair bill for everyday work trips.
Employers frequently rely on standard business mileage rates to handle travel reimbursements for their "grey fleet", which refers to employee-owned vehicles driven on company business. Understanding statutory thresholds ensures your finance team handles out of pocket expenses accurately while avoiding unexpected payroll tax liabilities.
What is a mileage rate?
A mileage rate represents the estimated cost of operating a personal road vehicle for business purposes, expressed as an amount per mile. Rather than requiring staff to itemise actual motoring costs, HMRC provides a statutory rate benchmark that employers can pay tax-free under statutory rules.
When employers reimburse staff using their personal vehicles, payments up to the statutory limit carry no UK Income Tax or Class 1 National Insurance Contributions (NICs). Because HMRC treats these approved payments as direct cost compensation rather than earnings, companies do not need to report compliant reimbursements on employee P11D forms at year end.
Crucially, AMAP rates serve as statutory tax-free caps rather than mandatory wage levels. Employers can set their own travel reimbursement policies, although aligning with official rates remains standard practice across UK organisations.
HMRC approved mileage allowance rates explained
HMRC provides statutory guidance outlining how approved mileage rates apply to business travel. Organisations should consult GOV.UK for up-to-date guidance on vehicle categories, rate bands, and applicable mileage rules. Official guidelines set parameters for business travel across different types of transport, helping finance teams standardise reimbursements.
Rates for cars, vans, and electric vehicles
The statutory AMAP mileage rate applies a tiered structure (such as 45p or 55p per mile for the initial threshold of business miles for cars/vans), rather than a single flat statutory rate. For up-to-date threshold figures and current rates across vehicle categories, consult official HMRC publications on GOV.UK.
Other approved statutory rates published by HMRC include:
- Motorcycles: 24p per mile across all business miles in the tax year (GOV.UK, 2026).
- Bicycles: 20p per mile for all qualifying business journeys (GOV.UK, 2026).
- Passenger supplement: An extra 5p per mile per passenger when carrying colleagues on the same qualifying business journey in a car or van (GOV.UK).
By contrast, Advisory Electricity Rates (AER) apply only to company-provided electric cars. For company electric vehicles, HMRC sets a single unified Advisory Electricity Rate (AER) per mile rather than separate rates for home and public charging.
What costs are included in the mileage rate?
The statutory mileage rate provides an allowance for work-related driving, simplifying expense processes by avoiding separate receipts for every motoring cost. For specific details on which vehicle expenses and running costs are covered by statutory mileage rates, finance teams should refer directly to official HMRC guidance manuals on GOV.UK.
How to calculate mileage reimbursement
Calculating reimbursements involves tracking cumulative business miles across the tax year. Where tiered rates apply, miles up to the initial threshold are calculated at the primary rate, and additional miles are calculated at the secondary rate. Always verify current published rates and threshold rules directly on GOV.UK before running payroll calculations.
VAT recovery on mileage fuel rates
For VAT-registered organisations managing travel expenses, rules regarding value added tax on fuel require specific handling. Because input tax rules require precise substantiation, finance teams should consult HMRC VAT Notice 700/64 on GOV.UK for current guidance, acceptable calculation methods, and documentation requirements.
Tax rules for paying more or less than approved rates
Paying higher rates
Some employers choose to reimburse travel at higher rates than the statutory benchmark. However, paying above approved thresholds triggers payroll obligations.
Mileage payments made to employees above the approved rates are subject to Class 1 National Insurance through payroll and must be reported on form P11D for income tax unless the employer has registered to payroll benefits.
Paying lower rates (Mileage Allowance Relief)
When employers reimburse travel below statutory rates or do not provide mileage payments, employees may explore Mileage Allowance Relief (MAR). Readers should check GOV.UK to review statutory qualification criteria and official claim procedures.
When making a retrospective claim, you must submit it within 4 years after the end of the year of assessment to which it relates under Section 43 of the Taxes Management Act 1970, subject to provisions prescribing a longer or shorter period.
Qualifying journeys versus commuting
To qualify for tax-free mileage payments, journeys must meet HMRC business travel guidelines. Travel between an employee's home and a regular permanent workplace is classified as ordinary commuting and cannot be reimbursed tax-free.
Performing incidental tasks during transit does not convert a commute into business travel. Businesses should review HMRC guidance in Booklet 490 to verify whether specific travel qualifies before issuing tax-free payments.