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:
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:
Only two types of journey count as business travel:
You are allowed to pay employees up to the approved amount of MAPs each year without having to report them to HM Revenue & Customs (HMRC) or pay any tax on them. These tax-exempt payments are known as 'approved mileage allowance payments' (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 tables 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).
| Type of vehicle | First 10,000 miles | Above 10,000 |
|---|---|---|
| Cars and vans | 45p | 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 £5,000(10,000 x 45p plus 2000 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'.
If the MAPs you pay to an employee exceed the approved amount for the tax year, then:
If the MAPs you pay are below the approved amount for the tax year:
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 50p, the tax position would be as follows:
| Item | Amount |
|---|---|
| MAPs | £5,500 (11,000 x 50p) |
| Approved amount | £4,750 ((10,000 x 45p)+(1,000 x 25p)) |
| Excess | £750 (5,500 - 4,750) |
In this example, the employer would have to report the £750 excess on the employee's form P11D.
The rules for NICs differ from those for tax in a number of ways and take into account a wider range of expenses.
NICs are due on payments of relevant motoring expenditure (RME) above a certain level. RME covers:
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).
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:
(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 | 45p |
| 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 £450 (1,000 x 45p).
NIM05831: detailed guidance on which business miles to use when calculating QA
If the RME you provide to an employee in the earnings period exceeds the qualifying amount:
If the RME is below the qualifying amount, you have:
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.
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 50p, the NICs position would be as follows:
| Item | Amount |
|---|---|
| RME | £500 (1,000 x 50p) |
| Qualifying amount | £450 (1,000 x 45p) |
| Excess | £50 (£500 - 450) |
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.
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.
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.
EIM31205: Employees using own vehicles for work - overview
