What is Car Mileage Allowance?
Car mileage allowance refers to the amount that individuals can claim back for business-related travel in their own vehicle. HM Revenue and Customs sets specific rates, known as approved mileage rates, which are designed to cover the costs of fuel, maintenance, insurance, and other associated vehicle expenses.
The approved rates are as follows:
- 45p per mile for the first 10,000 business miles in a tax year
- 25p per mile for any additional miles beyond that threshold
These rates apply to cars and vans. Different rates apply to motorcycles and bicycles, which are not the focus of this article.
Mileage allowance is intended to make it easier for individuals to calculate their tax relief without needing to provide detailed receipts for every vehicle-related expense. It simplifies tax reporting and ensures fairness when individuals use personal vehicles for work.
Why Mileage Allowance is Important
Many people unknowingly under-claim or over-claim mileage, leading to missed tax relief opportunities or potential penalties. It is important to distinguish between business journeys and personal travel. For example, commuting from home to a regular place of work does not qualify as a business journey, while travel between different client sites or temporary work locations does.
If an employer reimburses mileage at a lower rate than HMRC’s approved rate, employees can claim the difference through their tax return. This can be particularly useful for those whose employers only offer partial reimbursement.
Mileage Allowance for Employees
Employees who use their personal car for work can claim tax relief using the approved mileage rates. These rates cover a range of costs associated with running a vehicle, so you cannot claim for fuel, insurance, or repairs separately if you are claiming mileage.
If your employer pays Mileage Allowance Payments (MAPs), these are deducted from your tax relief calculation. If the reimbursement is at or above the HMRC rate, there is nothing more to claim. If the reimbursement is below the approved rate, you can claim the difference.
Example Calculation
Suppose an employee drives 11,500 miles in a tax year. The allowable claim would be:
- 10,000 miles at 45p = £4,500
- 1,500 miles at 25p = £375
- Total mileage claim = £4,875
If the employer reimburses the employee 15p per mile:
- 11,500 miles at 15p = £1,725
The claimable difference would be:
- £4,875 – £1,725 = £3,150
This amount can be claimed as tax relief. If the employee is a basic rate taxpayer (20%), they could receive £630 back. If they are a higher rate taxpayer (40%), the refund would be £1,260.
Mileage Allowance for Self-Employed Individuals
Self-employed individuals have two main options for claiming vehicle expenses: simplified expenses or actual costs.
Using Simplified Expenses
The simplified expenses method uses the same HMRC-approved mileage rates of 45p and 25p. This method is available for sole traders and business partnerships but is not applicable for limited companies.
To be eligible to use simplified expenses, the vehicle must not have already been claimed through capital allowances. If capital allowances have been used, simplified expenses cannot be applied.
Example for Self-Employed Simplified Expenses
Suppose a freelance graphic designer drives 9,000 business miles in a year. Using simplified expenses:
- 9,000 miles at 45p = £4,050
This amount can be included as a business expense on the tax return, reducing the individual’s taxable profit.
Using Actual Costs
If simplified expenses are not used, self-employed individuals must keep detailed records of all vehicle-related expenses. This includes:
- Fuel
- Insurance
- Road tax
- Servicing and maintenance
- Repairs
- Vehicle depreciation
You then calculate the proportion of these costs that relate to business use. This requires maintaining a mileage log that records both business and personal travel.
Claiming for Passengers
Drivers who carpool with other employees of the same business can claim an additional amount per passenger. HMRC allows an extra 5p per mile per qualifying passenger.
To qualify, passengers must be employees or officers of the same business. This incentive promotes efficient business travel and can increase the overall claim.
Example of Passenger Mileage Claim
An employee drives to a conference with four coworkers, covering 100 business miles. The claim would be:
- Base mileage: 100 miles at 45p = £45
- Passenger rate: 4 passengers at 5p per mile = £20
- Total claim: £65
This amount is tax-free and can be claimed directly or as part of a tax relief calculation.
Mileage Allowance and Commuting
It is essential to distinguish between allowable business travel and ordinary commuting. HMRC does not allow claims for commuting from home to a permanent place of work.
However, if your work requires travel to temporary workplaces, client sites, or between multiple job locations in a single day, those journeys typically qualify as business mileage.
Temporary workplaces are defined by HMRC as locations where you work for less than 24 months or where your presence is required only occasionally.
Using Mileage Logs
Accurate record-keeping is crucial for all types of mileage claims. Whether you are an employee or self-employed, keeping a detailed mileage log helps validate your claim if HMRC asks for evidence.
A good mileage log should include:
- Date of the journey
- Purpose of the journey
- Start and end locations
- Number of miles driven
Some individuals use spreadsheets, mileage apps, or physical logbooks. The important thing is that records are kept consistently and accurately throughout the tax year.
Claiming Mileage in Different Business Structures
Mileage claims can vary depending on the legal structure of your business. Sole traders and partnerships may use simplified expenses, while limited companies need a different approach.
If you operate as a limited company and use your own car for business, the company can reimburse you using the HMRC approved mileage rates. These reimbursements are tax-free for the employee and deductible for the company.
If the vehicle is owned by the company, additional rules apply. Employees must keep detailed fuel receipts and can only claim for business-related fuel expenses. Any personal use of a company vehicle may trigger a benefit-in-kind charge.
Other Considerations
Mileage claims are only one part of travel-related tax relief. In addition to vehicle use, individuals may be able to claim for:
- Parking fees
- Toll charges
- Congestion charges
- Overnight accommodation (for business trips)
However, fines (such as parking or speeding tickets) and normal commuting costs are not eligible for tax relief.
Reclaiming VAT and Managing Fuel Costs in Mileage Allowance Claims
Building on the understanding of car mileage allowance in the UK, this guide delves into the complexities of reclaiming VAT on mileage, using advisory fuel rates, and calculating business fuel costs for company vehicles. For both self-employed professionals and employees, these aspects are key to maintaining tax efficiency and compliance.
Reclaiming VAT on Mileage
While the approved mileage rates of 45p and 25p per mile are tax-free and intended to cover overall vehicle costs, they include more than just fuel. This is where VAT calculations require a closer look.
HMRC allows VAT to be reclaimed only on the fuel portion of the mileage allowance. To determine this, businesses must use advisory fuel rates, which are reviewed quarterly.
Understanding Advisory Fuel Rates (AFRs)
Advisory Fuel Rates are standardised fuel rates per mile based on the type and engine size of the vehicle. These rates represent the average fuel cost and vary depending on whether the vehicle runs on petrol, diesel, or electricity.
For instance, as of a recent update, the AFR for a petrol car with an engine size between 1401cc and 2000cc might be 14p per mile. If an employee claims mileage at the approved 45p per mile, the AFR helps identify the fuel portion.
Calculating VAT on Fuel Portion
To calculate how much VAT can be reclaimed, use the following formula:
- Multiply the AFR by 1 mile: e.g., 14p
- Apply the VAT fraction: 14p × (20 ÷ 120) = 2.33p
So, for every mile, 2.33p represents the VAT portion that can be reclaimed.
Example of a VAT Claim
If a business has reimbursed an employee for 1,000 miles:
- Fuel portion = 1,000 × 14p = £140
- VAT reclaimable = 1,000 × 2.33p = £23.30
This VAT claim is only permissible if the business retains valid VAT receipts showing that sufficient fuel has been purchased. HMRC may request these receipts as proof.
Fuel Receipts and Record-Keeping
To successfully reclaim VAT, retaining appropriate records is essential. Businesses must maintain:
- Mileage logs with date, journey, and purpose
- Advisory fuel rate used
- Copies of fuel receipts
The total fuel purchased must match or exceed the amount claimed. If a business attempts to claim VAT without corresponding receipts, HMRC can deny the claim and potentially impose penalties.
Company Cars and Business Fuel
When a company provides a vehicle for an employee, the rules for claiming expenses and VAT differ significantly from personal vehicle usage.
Claiming Fuel for Company Cars
For company-owned vehicles, employees can claim for the actual cost of fuel used during business journeys. The business may reimburse this cost and then claim VAT if adequate records are kept.
It is not appropriate to use the 45p or 25p mileage rates for company cars. Instead, companies use the advisory fuel rates to determine reimbursement.
Business Versus Personal Use
Employees driving company cars must distinguish between business and private journeys. Business travel includes:
- Travel to a temporary work location
- Client visits
- Business errands during the workday
Private travel includes:
- Commutes to and from a permanent workplace
- Personal errands during or after work
The Fuel Scale Charge
If a business pays for all fuel and does not require the employee to reimburse personal mileage, a fuel benefit-in-kind arises. This triggers a fuel scale charge based on CO2 emissions and vehicle type.
To avoid this charge, businesses must either:
- Require employees to reimburse all personal fuel use
- Only reimburse fuel for business mileage with receipts and records
Self-Employed Fuel Cost Deductions
For the self-employed, fuel costs are handled differently depending on whether they use simplified expenses or actual costs.
Simplified Expenses and Fuel
If simplified expenses are used, fuel costs are already included in the mileage rate. Therefore, the individual cannot claim additional fuel expenses or VAT on fuel.
Actual Cost Method
If the self-employed person opts for the actual cost method, they can claim a percentage of all vehicle costs based on business use.
For example:
- Total miles driven in the year: 15,000
- Business miles: 9,000
- Business use percentage: 60%
If total fuel cost is £2,000:
- Business portion: £2,000 × 60% = £1,200
If the fuel was bought with VAT and VAT receipts are kept, the individual can reclaim the VAT portion:
- VAT on £1,200 = £200 (if full VAT applied)
This method requires more detailed record-keeping, but it may result in a higher claim for those with high business mileage and running costs.
Leasing Versus Owning a Vehicle
How a vehicle is financed can also affect expense claims and VAT reclaims.
Leased Vehicles
If a business leases a car, it may be able to reclaim 50% of the VAT on lease payments if the car is used for both business and private purposes. If the car is used solely for business, 100% VAT can be reclaimed.
Fuel costs are claimed separately, and advisory fuel rates apply when reimbursing employees for business mileage.
Owned Vehicles
When a vehicle is owned outright by a business or individual, capital allowances may be claimed for the purchase. VAT can be reclaimed on the purchase only if the car is used exclusively for business purposes.
If there is any private use, VAT on the purchase cannot be reclaimed. Instead, ongoing running costs, including fuel and maintenance, can be partially claimed depending on business use.
Calculating Business Travel Expenses
Business travel includes more than just mileage. To ensure complete claims, it is important to include all relevant expenses:
- Public transport fares
- Hotel accommodation for overnight business stays
- Meals and subsistence
- Parking fees
- Congestion charges and tolls
These expenses must be wholly and exclusively for business purposes. HMRC does not allow claims for entertaining clients or for personal travel.
Example of Business Travel Expense Claim
Imagine a self-employed consultant travels to a two-day conference in another city:
- Drives 400 business miles: 400 × 45p = £180
- Hotel stay: £120
- Meals: £30
- Parking: £20
Total business expense claim = £350
This amount can be included in the tax return to reduce taxable profit. Receipts should be retained for all expenses except for the mileage rate, which is evidence-based through a logbook.
Hybrid and Electric Vehicles
The rise of electric and hybrid vehicles has introduced some changes to how mileage is claimed.
Electric Vehicles
HMRC allows a mileage rate for electric cars, which is typically set using the advisory electricity rate. This is currently lower than petrol or diesel rates due to lower running costs.
As of recent updates, the advisory electricity rate for fully electric vehicles may be around 9p per mile. Employers may reimburse this amount for company car users. Self-employed individuals using their own electric car can still claim 45p per mile under simplified expenses.
VAT on electricity used to charge vehicles at home is not usually reclaimable unless a separate business meter is installed. For workplace or public charging, VAT may be reclaimed if proper invoice.
Hybrid Vehicles
For hybrid vehicles, the rules follow the same structure as petrol or diesel vehicles. The advisory fuel rate is used based on the fuel type of the hybrid engine.
Impact of Mileage Allowance on Tax Planning
Understanding and managing mileage allowance claims can significantly impact tax planning for both individuals and businesses.
For Employees
Employees can increase take-home pay by claiming the difference between employer reimbursement and HMRC approved mileage rates. This is especially important when working for employers that offer low mileage reimbursements.
For Employers
Businesses can avoid additional tax charges by correctly reimbursing mileage and fuel costs using HMRC-approved rates. Good record-keeping and the use of advisory fuel rates help avoid benefit-in-kind complications.
For Self-Employed Professionals
Choosing between simplified expenses and actual costs affects both the size of deductions and the administrative burden. While simplified expenses are easier to apply, actual cost methods may yield higher deductions for those with substantial running costs.
Importance of Keeping Current
AFRs and VAT rules change quarterly and annually. Staying updated ensures that businesses apply the correct rates and avoid misclaims. It also ensures compliance in case of an HMRC audit.
Understanding Record-Keeping for Mileage Claims
Accurate record-keeping is fundamental when claiming car mileage allowance. Whether you’re self-employed or employed, keeping detailed and up-to-date records will ensure your claim is accepted by HMRC. These records act as your evidence and can be the difference between a successful claim and a rejected one.
For every business journey, it’s important to document the date, start and end location, purpose of the trip, and the total number of miles driven. This ensures transparency and makes it easier to justify the claim if HMRC requests further details. Electronic logs, apps, or mileage tracking software can automate much of this process. However, traditional paper logs are still valid as long as they are complete and legible.
What Should Be Included in Mileage Records
To ensure compliance with HMRC guidelines, each mileage record should ideally include:
- The date of the journey
- The start and end address
- The total miles covered
- The reason for the journey
- Names of any business passengers (if claiming the passenger allowance)
Employees and self-employed individuals should also record odometer readings at the beginning and end of trips, particularly when claiming under actual expenses.
Difference Between Business and Commuting Mileage
Understanding what counts as business mileage versus personal commuting mileage is essential. Only business-related travel is eligible for mileage claims. Commuting from your home to a permanent workplace is not considered business travel and cannot be claimed.
Business mileage includes:
- Travel to meet clients or suppliers
- Travel to temporary workplaces
- Trips between different work sites
- Travel to training or professional development events (if required for work)
Commuting mileage includes:
- Travel from home to your usual place of work
- Travel from home to a regular work site
Temporary workplaces must not be locations you attend regularly for more than 24 months or for more than 40% of your time.
Travel Between Home and Temporary Workplaces
When you travel to a temporary workplace directly from your home, you can usually claim this as business mileage. The temporary nature of the work site and the infrequency of your visits justify the expense as business-related.
For example, a contractor working at different sites every few weeks may claim the mileage between their home and each temporary location. Documentation should confirm the temporary nature of these assignments.
Claiming for Electric Vehicles
With the rise of electric vehicles (EVs), it’s important to understand how mileage claims apply. HMRC allows the same mileage rates for EVs as for petrol or diesel vehicles when using simplified expenses.
If you use actual costs instead, you must calculate the cost of electricity used during business travel. This is more complex because electricity costs can vary widely depending on how and where the vehicle is charged. When charging at home, you may estimate the electricity cost per mile, using your home electricity rate. When charging at public charging stations, keep all receipts to verify costs.
Hybrid Vehicles and Mileage Claims
Hybrid vehicles are treated similarly to traditional combustion engine cars for mileage allowance purposes. When using simplified expenses, the same 45p and 25p rates apply.
If you opt for actual costs, include both fuel and electricity costs in your calculations. Keep in mind that you cannot claim for personal use mileage or electricity consumption. Accurate apportioning between business and private use is necessary to ensure a compliant claim.
What Happens During a HMRC Mileage Audit
HMRC can investigate your mileage claims during a routine audit or if a red flag is raised during your Self Assessment. To prepare, make sure your records are complete, accurate, and up to date.
During an audit, HMRC may request:
- Mileage logs with dates, locations, and purposes
- Fuel receipts and service records
- Proof of business use for specific journeys
- Employment contracts or client agreements showing the necessity of travel
If discrepancies are found, HMRC may demand repayment, charge penalties, or levy interest on unpaid tax. Repeated or significant errors can escalate the severity of enforcement.
Claiming Mileage for Mixed-Use Vehicles
When a vehicle is used for both personal and business purposes, only the business mileage can be claimed. It’s critical to distinguish between personal and professional use clearly.
You may:
- Keep a log for each journey, categorising it as personal or business
- Use telematics or vehicle tracking software to identify mileage patterns
- Calculate the business use percentage and apply it to vehicle costs (if using actual expenses)
HMRC will expect thorough justification for mixed-use claims, especially if the business use proportion is high.
Differences for Sole Traders and Limited Companies
Sole traders and limited companies approach mileage claims differently.
For sole traders:
- Simplified expenses are often the preferred method, claiming 45p/25p per mile
- Actual running costs may be used if simplified rates aren’t beneficial
For limited companies:
- Directors and employees must submit expense claims to the company
- The company reimburses mileage at HMRC rates, and this is treated as a business expense
- If paid above HMRC rates, the excess becomes a taxable benefit
Mileage claims from company directors should be properly documented to avoid tax issues.
Pool Cars and Mileage Claims
A pool car is a vehicle made available to multiple employees and kept at the workplace. These vehicles are not assigned to any individual and are not intended for personal use.
Claims for pool cars usually involve fuel costs and are not eligible for mileage allowance using simplified expenses. Instead, companies must:
- Record all business journeys in a mileage log
- Retain fuel receipts
- Ensure no private use occurs
HMRC imposes strict rules on pool cars. If they’re used privately, they may become taxable benefits.
Employer Responsibilities for Mileage Reimbursement
Employers who reimburse staff for business mileage have obligations to ensure compliance. They must:
- Reimburse at or below HMRC-approved rates (to avoid taxable benefits)
- Retain mileage logs for a minimum of four years
- Monitor claims for accuracy and legitimacy
Employers can implement mileage claim forms, digital submission tools, or vehicle tracking systems to ensure accuracy. If reimbursing above the HMRC rates, the excess must be reported on a P11D form and National Insurance may apply.
Tax Implications of Mileage Allowance Payments
Mileage Allowance Payments (MAPs) are reimbursements paid by employers to cover business travel in personal vehicles. These are tax-free only up to the HMRC-approved rates. Any amount paid above these rates is considered a benefit-in-kind and must be reported.
Employees receiving less than the approved rates can claim the difference as tax relief. MAPs are not available to self-employed individuals. Instead, self-employed taxpayers must claim mileage directly through their Self Assessment return.
VAT Recovery and Mileage Claims in Businesses
Businesses registered for VAT may reclaim the VAT portion of mileage expenses, but only on the fuel component. To do so:
- Use HMRC’s Advisory Fuel Rates (AFRs) to determine the fuel rate per mile
- Apply the formula: AFR × (20/120) to calculate VAT per mile
For example, if the AFR is 14p per mile:
14p × 20/120 = 2.33p VAT per mile
Businesses must retain valid VAT receipts covering the period of the mileage claim. Without receipts, VAT recovery is not permitted.
Annual Mileage Caps and Their Effects
The annual cap of 10,000 miles at 45p applies per employee or self-employed taxpayer. Beyond that threshold, the lower rate of 25p applies.
This cap encourages reasonable business mileage and limits tax relief on high-mileage roles. Planning annual mileage can help maximize your relief.
For example, spreading travel across tax years, or assigning vehicles to staff who haven’t reached their cap, can make use of higher-rate claims.
Claiming Mileage for Bicycles and Motorcycles
HMRC also provides mileage rates for other modes of transport:
- Motorcycles: 24p per mile (no upper threshold)
- Bicycles: 20p per mile (no upper threshold)
These rates apply whether you’re employed or self-employed. Although lower than car mileage rates, they still provide tax relief on valid business travel. Environmental and health-conscious commuters may find these options valuable, especially for short-distance travel.
Keeping Digital Mileage Records
Digital record-keeping makes compliance easier. There are many apps and tools that:
- Track mileage automatically via GPS
- Categorise journeys as business or personal
- Generate reports for tax submissions
These systems reduce human error and create a reliable audit trail. When using digital tools, ensure they’re regularly backed up and meet data protection requirements. Many platforms also allow exporting records directly to accounting software, streamlining the claim process.
Common Mistakes to Avoid When Claiming Mileage
Mistakes in mileage claims can lead to denied deductions or even penalties. Common errors include:
- Including personal trips as business mileage
- Not recording the purpose of the journey
- Overestimating mileage figures
- Forgetting to deduct reimbursed mileage from claims
- Claiming for regular commuting mileage
Reviewing HMRC guidance regularly and maintaining detailed logs will help avoid these pitfalls.
Updating Mileage Rates and Staying Informed
HMRC reviews Advisory Fuel Rates quarterly—in March, June, September, and December. Mileage allowance rates are also subject to periodic review.
Staying informed about changes is essential. Updated rates affect reimbursement calculations, VAT recovery, and accurate tax relief. Employers and self-employed taxpayers should regularly consult HMRC’s website or subscribe to update alerts.
Combining Mileage Claims With Other Travel Expenses
Mileage isn’t the only expense you can claim for business travel. Other deductible expenses include:
- Parking fees
- Road tolls
- Overnight accommodation for business trips
- Meals (subject to rules)
These can be claimed in addition to mileage, but must be wholly and exclusively for business purposes. Detailed receipts and records are required, and expenses should not include any private or personal elements.
Business Travel Beyond the UK
If business travel extends beyond UK borders, mileage claims become more complex. You cannot use HMRC mileage rates for foreign driving, but you can:
- Claim actual fuel costs with supporting receipts
- Include vehicle hire and insurance as allowable expenses
Ensure you also comply with local tax laws if operating internationally. Currency conversion records and foreign VAT rules should also be considered.
Conclusion
Claiming car mileage allowance can significantly reduce your tax liability and help you manage your business travel expenses more efficiently—whether you’re self-employed or an employee. Understanding the nuances between approved mileage rates, how to apply them, and what expenses are eligible ensures you stay compliant with HMRC regulations while maximizing your tax relief.
For employees, sticking to HMRC’s approved rates and maintaining accurate records of business journeys allows for straightforward claims, even when your employer reimburses you below the official rates. Keeping track of passenger mileage, fuel-only reimbursements for company cars, and annual mileage thresholds can make a meaningful difference when it comes to claiming your entitlements correctly.
If you’re self-employed, you have the flexibility to choose between simplified expenses and actual cost methods. While simplified expenses offer convenience and clarity, actual cost methods may be more beneficial if your operating costs are particularly high. Knowing when and how to apply capital allowances, the treatment of vans and company cars, and the correct application of VAT claims is key to optimizing your deductions.
No matter your employment status, the most important part of mileage allowance claims is meticulous recordkeeping. Detailed logs of your trips, the purposes of your travel, receipts, and calculations are essential in the event HMRC needs to review your submission. Tools that help automate this process or track miles in real-time can offer peace of mind and reduce the risk of errors.
As tax rules evolve and your business or work circumstances change, staying informed on the latest HMRC mileage rates, VAT rules, and allowable claims ensures that you’re always one step ahead. By taking the time to understand your options and applying the correct method suited to your situation, you can turn routine travel into a valuable tax-saving opportunity.