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Mileage expenses for business travel in employees’ own vehicles
This guide explains the rules for reporting and paying tax and National Insurance contributions (NICs) on any payments you make to your employees to cover the costs of business travel in their own vehicles.
There are two separate schemes used to deal with these mileage expenses – one for tax and one for NICs.
On this page:
- The rules for tax
- A sample tax calculation
- The rules for NICs
- A sample NICs calculation
- Passenger payments
- Where to report – understanding the £8,500 threshold
- Technical guidance
The rules for tax
Definitions or restrictions - MAPs
Mileage allowance payments (MAPs) are payments you make to an employee for expenses related to their use of their own vehicle for business travel.
MAPs do not include:
- Payments that aren’t made to an employee.
- Payments that aren’t related to expenses of business travel in the employee’s own vehicle.
- Benefits provided in connection with the employee’s business use of their private vehicle, such as fuel, insurance and vehicle maintenance. (Note that these are chargeable in full, with no reduction for the business proportion of the vehicle’s use.)
Only two types of journey count as business travel:
- journeys that form part of an employee’s employment duties (such as journeys between clients’ premises by a salesperson)
- journeys that relate to an employee’s attendance at a temporary workplace
Definitions or restrictions – AMAPs
You are allowed to pay employees up to the approved amount of MAPs each year without having to report them to them to HMRC or pay any tax on them. These tax-exempt payments are known as ‘approved mileage allowance payments’ (AMAPs).
How to calculate AMAPs
Only mileage allowance payments, as defined above, can be tax-exempt as AMAPs – other payments or benefits can’t. The approved amount that you can pay free of tax each tax year is calculated by multiplying the employee’s business travel miles for the tax year by the applicable rate per mile for the kind of vehicle being used, as set out in the table below.
| Type of vehicle | First 10,000 miles | Above 10,000 |
|---|---|---|
| Cars and vans | 40p | 25p |
| Motorcycles | 24p | 24p |
| Cycles | 20p | 20p |
So if an employee travels 12,000 business miles in their car or van, the approved amount for the year would be £4,500 (10,000 x 40p, plus 2,000 x 25p).
Note that you must count an employee’s business mileage in all vehicles of the same type together (eg, all cars or all motorcycles they use for business during the tax year). So if an employee changes their car or van, they don’t start a new ‘first 10,000 miles’.
What to report, what to pay
If the MAPs you pay to an employee exceed the approved amount for the tax year, then:
- for company directors or employees earning at a rate of £8,500 or more per year, report the excess amount on form P11D
- for employees earning less than that, you have no reporting requirements
- regardless of the employee’s earnings, you have no tax to pay to HMRC
If the MAPs you pay are below the approved amount for the tax year:
- you have no reporting requirements
- you have no tax to pay to HMRC
- your employee will be able to get tax relief (called Mileage Allowance Relief, or MAR) on the unused balance of the approved amount
- you can make separate optional reports to HMRC of any such unused balances under a scheme called the Mileage Allowance Relief Optional Reporting Scheme (MARORS) - contact your HMRC office if you want to enter the MARORS scheme
A sample tax calculation
If an employee travels 11,000 business miles in a car or van during the tax year, and their employer reimburses all their miles at a rate of 45p, the tax position would be as follows:
| Item | Amount |
|---|---|
| MAPs | £4,950 (11,000 x 45p) |
| Approved amount | £4,250 ((10,000 x 40p) + (1,000 x 25p)) |
| Excess | £700 (4,950 – 4,250) |
In this example, the employer would have to report the £700 excess on the employee’s form P11D.
The rules for NICs
The rules for NICs differ from those for tax in a number of ways and take into account a wider range of expenses.
Definitions or restrictions
NICs are due on payments of relevant motoring expenditure (RME) above a certain level. RME covers:
- MAPs, as described in the section on tax above
- payments which would be MAPs except that they are made to someone other than the employee (but still for the employee’s benefit)
- any other payments – except payments in kind – made by you (or on your behalf) to the employee (or for their benefit) relating to the use of their vehicle, whether for private or business purposes
The maximum amount of RME that can be disregarded for NICs purposes for an employee in each earnings period is called the ‘qualifying amount’ (QA).
How to calculate the qualifying amount
You calculate the qualifying amount (the amount you can disregard for NICs purposes) by multiplying the employee’s business miles in the earnings period by the applicable rate per mile from the table below.
‘Business miles in the earnings period’ means the sum of:
- the business miles for which you make a payment of RME in the earnings period (excluding any miles for which another payment has already been made)
- any business miles driven since the last payment of RME – or since the employee’s employment began, if you haven’t made a previous payment of RME to them – for which you won’t be making a payment of RME
(Follow the link at the end of this section for more detailed guidance on working out the ‘business miles in the earnings period’.)
The rates per mile for cars, vans, motorcycles and cycles are set out in the table below. Note that unlike the tax rules, there is no difference in the rate for cars and vans above 10,000 miles.
| Type of vehicle | Every business mile |
|---|---|
| Cars and vans | 40p |
| Motorcycles | 24p |
| Cycles | 20p |
So if you make a payment of RME to cover 1,000 business miles that an employee has driven in their car or van, the qualifying amount for the earnings period would be £400 (1,000 x 40p).
NIM05831: detailed guidance on which business miles to use when calculating QA
What to report, what to pay
If the RME you provide to an employee in the earnings period exceeds the qualifying amount:
- add the excess to their other earnings for that earnings period when calculating Class 1 NICs (but not PAYE tax) through your payroll
If the RME is below the qualifying amount, you have:
- nothing to report
- no NICs to pay
Note that there is no NICs equivalent of Mileage Allowance Relief and you cannot carry forward the difference between RME and the qualifying amount to use in a later earnings period.
A sample NICs calculation
If an employee travels 1,000 business miles in the earnings period and the only RME is their employer’s reimbursement of all these miles at the end of the earnings period at a rate of 45p, the NICs position would be as follows:
| Item | Amount |
|---|---|
| RME | £450 (1,000 x 45p) |
| Qualifying amount | £400 (1,000 x 40p) |
| Excess | £50 (£450 – £400) |
In this example, the employer would have to add the £50 excess to the employee’s earnings when calculating Class 1 NICs for the earnings period.
Passenger payments
If one of your employees carries any other employees in their own car or van on business travel, you can pay them passenger payments of up to 5p per passenger per business mile without having to report these to HMRC or pay and tax or NICs on them. The passengers must be employees and they must also be travelling on business journeys.
There is no equivalent to Mileage Allowance Relief (MAR) for passenger payments. If you make no passenger payments or if you don’t pay the full amount allowable, employees are not entitled to any tax relief.
Where to report – understanding the £8,500 threshold
It’s important to choose correctly between forms P11D and P9D for each employee. The form to use depends on the whether the employee is a director of your company and on whether their earnings are above or below an annual rate of £8,500. For more information – including details of what’s included in the £8,500 threshold - follow the link below.
Technical guidance
EIM31205: Employees using own vehicles for work – overview
