Claiming costs for mileage

Understanding Tax-Free Mileage Rates

Claiming mileage for business travel carried out in your personal vehicle is a standard part of working life. To reimburse employees tax-free for the costs of owning and running their personal vehicle (including fuel, insurance, servicing, and depreciation), HMRC sets official Approved Mileage Allowance Payment (AMAP) rates.

For cars and vans, the current tax-free AMAP rates are:

• 55p per mile for the first 10,000 business miles in a tax year.
• 25p per mile for any business travel over 10,000 miles.

Additional approved rates include 24p per mile for motorcycles, 20p per mile for bicycles, and an extra 5p per mile per passenger when carrying a fellow employee on a business journey.

When an employer reimburses business mileage at these standard approved rates, payments are completely tax-free and do not need to be reported on P11D forms. Employers may also be eligible to reclaim VAT on the underlying fuel element of the mileage payment.

Mileage Rates Below the HMRC Approved Limit

Employers are not legally obligated to pay the full approved rate. If your employer reimburses you at a lower rate (for example, paying 35p per mile instead of the 55p approved rate), you do not lose out entirely.

Employees can claim Mileage Allowance Relief (MAR) on the shortfall. By submitting a claim through your Self Assessment tax return or via HMRC Form P87, you can deduct the difference from your total taxable income. This reduces your overall tax liability, generating a tax refund proportional to your personal tax rate.

Mileage Rates Above the HMRC Approved Limit

If an employer pays a rate higher than the official HMRC ceiling, the excess amount cannot be paid tax-free. Any payment above the approved rate is classed as a taxable benefit in kind (or additional earnings) and will be subject to Income Tax and National Insurance.

Electric Vehicles and Advisory Rates

Understanding which rate applies to electric vehicles (EVs) depends on whether you drive a personal car or a company-owned vehicle:

• Personal Electric Vehicles: If you use your own personal EV for business travel, the standard AMAP rate of 55p per mile applies—exactly the same as for petrol or diesel cars.
• Company-Owned Electric Vehicles: If you drive a company electric car, HMRC’s Advisory Fuel Rates (AFR) apply rather than AMAP rates. HMRC sets an Advisory Electric Rate (AER) for company EV charging—including separate tiers for home charging (7p per mile) and public charging (15p per mile)—allowing employers to reimburse exact electricity costs without creating a taxable fuel benefit.

Considering the Impact on Borrowing and Mortgages

While claiming Mileage Allowance Relief reduces your tax bill, it is important to consider the broader financial picture. Claiming MAR reduces your official taxable income on record with HMRC. When applying for a mortgage or loan, lenders assess your borrowing capacity based on your gross taxable income. Lowering your official taxable income through mileage claims could slightly lower your maximum borrowing limit, so it is worth weighing up if a major loan application is on the horizon.

Get Expert Help with Mileage and Tax Relief

Whether you are an employer reviewing your company expense policy, an employee looking to claim back tax on under-reimbursed mileage, or a business managing complex company fleet rules, staying compliant with HMRC rules is essential.

At MNE Accounting, we specialise in simplifying corporate and personal tax matters. Contact us today or give our team a call to ensure your mileage claims and tax returns are fully optimised.