Car mileage allowance in the UK is money your employer can pay you tax-free for using your personal vehicle for work purposes. The government sets maximum rates called Approved Mileage Allowance Payments (AMAPs) that protect both you and your employer from extra tax charges.
This system helps millions of British workers who drive their own cars for business trips, client visits, or travel between work sites. Understanding how it works can save you money and ensure you’re properly compensated for work-related driving costs.
Current UK Mileage Allowance Rates 2025
The HM Revenue and Customs (HMRC) sets official mileage rates that employers can pay without creating a tax liability. These rates cover fuel, insurance, wear and tear, and vehicle depreciation.
Official HMRC Mileage Rates
| Vehicle Type | First 10,000 miles | Over 10,000 miles |
|---|---|---|
| Cars and vans | 45p per mile | 25p per mile |
| Motorcycles | 24p per mile | 24p per mile |
| Bicycles | 20p per mile | 20p per mile |
These rates apply to business journeys only. Your daily commute to your regular workplace doesn’t qualify for mileage allowance.
The two-tier system for cars means you receive higher compensation for your first 10,000 business miles each tax year. After that threshold, the rate drops to 25p per mile.
How Car Mileage Allowance Works
Your employer can choose to pay mileage allowance in several ways. The most common approach involves submitting monthly expense claims with details of your business journeys.
What Qualifies as Business Mileage
Business mileage includes:
- Travelling to meetings with clients or suppliers
- Visiting multiple work sites in one day
- Attending training courses or conferences
- Making deliveries or collections for work
- Travelling to temporary workplaces
What Doesn’t Count
Regular commuting doesn’t qualify for mileage allowance. This includes your normal journey from home to your permanent workplace and back.
However, if you travel directly from home to a client meeting instead of going to your office first, you can claim the difference between your normal commute and the actual journey distance.
Tax Implications of Mileage Allowance
When your employer pays the HMRC approved rates, neither you nor your employer pays extra tax or National Insurance contributions. This makes mileage allowance highly tax-efficient compared to salary increases.
If Your Employer Pays Less Than HMRC Rates
You can claim tax relief on the difference through your self-assessment tax return or by contacting HMRC directly. This is called Mileage Allowance Relief (MAR).
For example, if HMRC allows 45p per mile but your employer only pays 25p, you can claim tax relief on the 20p difference.
If Your Employer Pays More Than HMRC Rates
Any amount above the approved rates becomes taxable income. Your employer must add this to your payroll and deduct income tax and National Insurance.
Calculating Your Mileage Allowance
Accurate record-keeping is essential for claiming mileage allowance. You need to document every business journey with specific details.
Essential Information to Record
For each business trip, record:
- Date of journey
- Start and end destinations
- Purpose of trip
- Total miles travelled
- Any parking fees or tolls
Many people use smartphone apps or simple spreadsheets to track this information. The key is consistency and accuracy.
Sample Calculation
Here’s how mileage allowance works in practice:
Annual business mileage: 15,000 miles
- First 10,000 miles: 10,000 × £0.45 = £4,500
- Remaining 5,000 miles: 5,000 × £0.25 = £1,250
- Total allowance: £5,750
This tax-free payment significantly helps cover the costs of using your personal vehicle for work.
Claiming Mileage Allowance From Your Employer
Most employers have established procedures for claiming mileage allowance. Understanding these processes helps ensure prompt payment.
Common Claim Methods
Monthly Expense Claims Submit detailed mileage logs with supporting documentation like meeting confirmations or client emails.
Digital Expense Systems Many companies use online platforms where you upload journey details and supporting evidence.
Automatic Payments Some employers pay fixed monthly amounts based on estimated business mileage, with annual reconciliations.
Supporting Documentation
Keep evidence of your business trips:
- Meeting invitations and confirmations
- Client correspondence
- Training course documentation
- Delivery notes or work orders
This documentation proves your journeys were for business purposes if HMRC requests evidence.
Self-Employed Mileage Claims
Self-employed individuals can claim business mileage as a tax-deductible expense. You have two options for calculating these deductions.
Simplified Mileage Method
Use the same HMRC rates as employees:
- 45p per mile for the first 10,000 business miles
- 25p per mile for additional mileage
This method is straightforward and covers all vehicle costs in one calculation.
Actual Cost Method
Alternatively, calculate the actual proportion of vehicle costs used for business. This includes:
- Fuel costs
- Insurance premiums
- Road tax
- MOT and servicing
- Depreciation
- Repairs and maintenance
You then claim the business percentage of these costs. This method requires detailed record-keeping but might give higher deductions for expensive vehicles or high-mileage users.
Company Car vs Mileage Allowance
Many employees face the choice between a company car and using their personal vehicle with mileage allowance. Each option has distinct financial implications.
Financial Comparison
Company Car Considerations:
- Benefit-in-kind tax based on car’s P11D value and CO2 emissions
- No fuel costs if employer provides fuel card
- Maintenance and insurance typically covered
- No vehicle depreciation risk
Personal Car with Mileage Allowance:
- Tax-free payments up to HMRC rates
- Keep ownership and control of your vehicle
- Bear all maintenance and depreciation costs
- Flexibility to choose any vehicle
Making the Right Choice
Consider your annual business mileage, personal driving needs, and tax position. High business mileage often makes personal cars with mileage allowance more attractive financially.
The Environmental Transport Association provides helpful guidance on calculating the true cost of company cars versus mileage allowance arrangements.
Record Keeping and Evidence Requirements
HMRC can request evidence of your business mileage claims up to six years after the relevant tax year. Proper record-keeping protects you from potential penalties and ensures you can substantiate your claims.
Digital Record Keeping
Modern mileage tracking apps automatically record GPS data, making accurate record-keeping easier. Popular options include:
- Built-in smartphone location services
- Dedicated mileage tracking applications
- Integration with expense management systems
Paper Records
Traditional paper logs remain acceptable. Create a simple format recording date, destinations, mileage, and business purpose for each journey.
Store supporting documentation systematically. Digital photos of receipts and meeting confirmations provide convenient backup copies.
Common Mistakes to Avoid
Understanding frequent errors helps you avoid problems with mileage allowance claims.
Claiming Personal Journeys
Never include personal trips in business mileage claims. This includes:
- Regular commuting to your permanent workplace
- Personal errands during business trips
- Social activities with colleagues
Inadequate Documentation
Insufficient records cause claim rejections and potential HMRC investigations. Always document the business purpose of each journey.
Double Claiming
Don’t claim mileage allowance and actual vehicle costs for the same journeys. Choose one method and apply it consistently.
Incorrect Mileage Calculations
Use accurate mileage measurements. Estimate journeys conservatively if you’re unsure of exact distances. Online mapping tools provide precise calculations for common routes.
Employer Responsibilities and Policies
Employers have specific obligations when operating mileage allowance schemes. Understanding these helps both employers and employees navigate the system correctly.
Policy Development
Employers should create clear policies covering:
- Eligible journey types
- Claim submission procedures
- Required documentation
- Payment timeframes
- Appeal processes
HMRC Compliance
Employers must ensure mileage payments don’t exceed HMRC approved rates without proper tax treatment. Regular policy reviews help maintain compliance as regulations change.
The Institute of Chartered Accountants in England and Wales offers detailed guidance on employment tax implications of mileage allowance schemes.
Electric and Hybrid Vehicle Considerations
The government provides the same mileage allowance rates for electric and hybrid vehicles as conventional cars. However, the actual costs of running these vehicles often differ significantly.
Electric Vehicle Benefits
Electric car users often find the 45p per mile rate generous because:
- Lower fuel costs (electricity vs petrol/diesel)
- Reduced maintenance requirements
- Government grants reducing purchase costs
Future Rate Changes
The government periodically reviews mileage allowance rates. Electric vehicle adoption might influence future rate structures, though current rates apply regardless of fuel type.
International and Cross-Border Travel
Business travel involving international journeys has specific considerations for mileage allowance claims.
European Travel
Mileage allowance applies to business journeys within Europe, using the same HMRC rates. Keep detailed records of international trips, including ferry costs and foreign fuel receipts.
Northern Ireland Considerations
Special rules apply for travel between Great Britain and Northern Ireland. Consult HMRC guidance or tax professionals for complex cross-border scenarios.
Appeals and Dispute Resolution
Disagreements over mileage allowance claims can arise between employees and employers or with HMRC. Understanding resolution processes helps protect your interests.
Internal Appeals
Most employers have internal processes for disputed expense claims. Present your case with clear documentation and reference to company policy.
HMRC Disputes
For tax-related disputes, HMRC offers review and appeal processes. The Citizens Advice Bureau provides free guidance on dealing with HMRC disputes and your rights during investigations.
Future Changes and Developments
Government policy changes periodically affect mileage allowance rates and rules. Staying informed helps you adapt to new requirements.
Potential Rate Adjustments
HMRC reviews mileage rates periodically, considering inflation and vehicle running costs. Recent changes have been infrequent, but monitoring government announcements helps anticipate adjustments.
Environmental Considerations
Future policy might differentiate between vehicle types based on environmental impact. Electric vehicle incentives could influence mileage allowance structures.
Summary
Car mileage allowance in the UK provides valuable tax-free compensation for using personal vehicles on business. The current rates of 45p per mile for the first 10,000 miles and 25p thereafter offer significant financial benefits for employees who drive regularly for work.
Key points to remember:
- Keep accurate records of all business journeys
- Understand what qualifies as business mileage
- Know your employer’s claim procedures
- Consider tax implications if payments exceed HMRC rates
- Choose between company cars and mileage allowance based on your circumstances
Proper understanding and management of mileage allowance can result in thousands of pounds in tax-free compensation annually. Whether you’re an employee negotiating benefits or self-employed managing business expenses, these rules provide a framework for fair compensation while maintaining tax compliance.
The system balances simplicity with accuracy, allowing millions of workers to receive appropriate compensation for business travel costs while ensuring tax authorities can monitor compliance effectively.
Frequently Asked Questions
Can I claim mileage allowance for driving to my regular workplace?
No, your normal commute to your permanent workplace doesn’t qualify for mileage allowance. However, if you travel directly from home to a client meeting or temporary workplace, you can claim the difference between your normal commute distance and the actual journey.
What happens if my employer pays less than the HMRC approved rates?
You can claim tax relief on the difference through Mileage Allowance Relief (MAR). Submit the shortfall through your self-assessment tax return or contact HMRC directly to claim the relief.
Do I need to keep fuel receipts for mileage allowance claims?
No, the HMRC mileage rates are designed to cover all vehicle running costs including fuel. You only need to record journey details and business purposes, not individual fuel receipts.
Can I claim mileage allowance for using someone else’s car for business?
Generally, mileage allowance applies to using your own vehicle. If you use someone else’s car for business, check with your employer about their specific policies and whether alternative arrangements apply.
How long should I keep records of my mileage claims?
Keep all mileage records and supporting documentation for at least six years after the end of the relevant tax year. HMRC can request evidence during this period, so maintaining organised records protects you from potential issues.