Under HMRC mileage allowance rules, an employer can pay you up to 45p for each of the first 10,000 business miles you drive in your own car or van in a tax year, and 25p for every mile after that, without any tax falling due. Anything above those rates is taxable earnings; anything below entitles you to claim tax relief on the difference. The rates for motorcycles and bicycles are lower and flat, and the whole system depends on the journey qualifying as business travel rather than ordinary commuting.
The Approved Rates
Section 230 of the Income Tax (Earnings and Pensions) Act 2003 sets the maximum per-mile figures an employer can pay tax-free when you use your own vehicle for work. These are called Approved Mileage Allowance Payments, or AMAPs.1Legislation.gov.uk. Income Tax (Earnings and Pensions) Act 2003 – Part 4, Chapter 2
- Cars and vans: 45p per mile for the first 10,000 business miles in the tax year, then 25p per mile.
- Motorcycles: 24p per mile, with no threshold change.
- Bicycles: 20p per mile, with no threshold change.
These are ceilings, not floors. Your employer can pay any amount up to the approved rate free of tax, and many pay exactly at it. Some pay less. A few pay more. Where you sit on that scale determines everything that follows.
Carrying a Passenger
If a colleague travels with you on a business trip, your employer can add 5p per mile per passenger on top of the vehicle rate, tax-free. That figure comes from Section 234 of ITEPA 2003 and applies whether the vehicle is yours or the company’s.2Legislation.gov.uk. Income Tax (Earnings and Pensions) Act 2003 – Passenger Payments Unlike the main mileage rates, no tax relief is available if your employer declines to pay the passenger element or pays below 5p.
When Payments Above the Rate Become Taxable
Section 229 of ITEPA 2003 keeps mileage payments free of income tax provided the total for the tax year stays within the approved amount.3Legislation.gov.uk. Income Tax (Earnings and Pensions) Act 2003 – Section 229 Once payments cross the limit, the excess is taxable earnings, and your employer should collect the tax through PAYE.
National Insurance follows a similar rule. Where the mileage paid in an earnings period exceeds the qualifying amount, the excess is added to your other earnings when Class 1 contributions are calculated.4HM Revenue & Customs. Expenses and Benefits: Business Travel Mileage – Rules for National Insurance Employer NICs apply to the excess as well, which is why paying above the approved rate is unusual.
What Counts as Business Travel
Only qualifying business journeys get the tax-free treatment. Your daily journey from home to your regular workplace is private travel and does not qualify, regardless of how the employer labels the payment. Business travel usually means trips to a temporary workplace, journeys between two work sites, or travel to meet clients or attend off-site meetings.
The 24-Month Rule
A workplace counts as temporary only if you attend it for a task of limited duration or some other temporary purpose. HMRC draws a firm line: if you work at the same location, or expect to, for more than 24 months, it becomes a permanent workplace and travel there stops qualifying.5HM Revenue & Customs. Employment Income Manual – EIM32080
The test looks at whether you spend 40% or more of your working time at that location over a period lasting, or likely to last, more than 24 months. Once a site tips into permanent status, journeys to it are ordinary commuting and any mileage payments for them become fully taxable.
Claiming Relief When Paid Below the Approved Rate
If your employer pays less than the approved rate, or nothing at all, you can claim Mileage Allowance Relief for the shortfall. Section 231 of ITEPA 2003 gives you relief equal to the difference between what you received and the approved amount for your vehicle type.6Legislation.gov.uk. Income Tax (Earnings and Pensions) Act 2003 – Section 231 Relief is not available if you were a passenger in someone else’s vehicle or driving a company car.
A worked example makes the mechanics clearer. Suppose you drove 12,000 business miles in your own car and your employer paid 30p per mile. You received £3,600. The approved amount is £4,750 (10,000 miles at 45p, plus 2,000 at 25p). You can claim relief on the £1,150 gap, which reduces your taxable income by that figure.
The claim goes through Form P87, sent to HMRC by post.7HM Revenue & Customs. Claim Tax Relief for Your Job Expenses by Post Since October 2024, HMRC has required postal submission with supporting evidence for most expense claims. If the claim is approved, HMRC usually adjusts your tax code so less tax is withheld from later paycheques, though in some cases you receive a direct refund.
Records You Need to Keep
HMRC expects a mileage log covering every business journey. At a minimum it should show the date, where you travelled from and to, the purpose of the trip, and the business miles driven.8GOV.UK. A General Guide to Keeping Records for Your Tax Returns Parking and tolls are deductible separately, so note those alongside.
If the same vehicle covers work and personal miles, keep enough detail to split the two. A running log of business versus private miles will do.8GOV.UK. A General Guide to Keeping Records for Your Tax Returns Smartphone tracking apps capture the same information automatically and leave less room for dispute. Whatever you use, the records need to exist contemporaneously. Backdated logs are the fastest way to lose a claim.
If You Are Self-Employed
Sole traders don’t receive mileage payments from an employer but can still deduct vehicle costs against trading profits. Section 94D of the Income Tax (Trading and Other Income) Act 2005 offers a choice between simplified expenses and actual costs.
The simplified method uses the same flat rates: 45p per mile for the first 10,000 business miles by car or van, 25p thereafter, and 24p for motorcycles. You deduct the total from trading income on your Self Assessment return. It works well when you want to avoid tracking every fuel receipt.
The actual-cost method totals every vehicle expense for the year, including fuel, insurance, servicing, repairs, road tax, and depreciation, and applies the business-use percentage. It involves more paperwork but can produce a larger deduction for high-mileage or higher-cost vehicles.
One constraint matters: once you pick a method for a vehicle, you must stick with it for as long as you use that vehicle in the business. You get a fresh choice only when you replace it.
Company Cars Follow a Different Rate
If you drive a company car rather than your own, the 45p rate does not apply. HMRC publishes advisory fuel rates each quarter, split by engine size and fuel type, covering only the fuel element of business travel.9HM Revenue & Customs. Advisory Fuel Rates Electric vehicles have separate rates for home and public charging. If your employer reimburses at or below the advisory rate, there is no taxable benefit and no Class 1A NIC to pay. Payments above the advisory rates are taxable unless the employer can show the actual fuel cost per mile is genuinely higher.
Mixing the two systems up is one of the most common mistakes. The 45p AMAP rate covers your own car. The advisory fuel rates cover the company’s car. Applying the wrong one will either short-change you or create an avoidable tax liability.