Mileage Allowance Payments: What Is Tax-Free?

Employees who use their own car, van, motorcycle or bicycle for business journeys. This guide focuses solely on employee mileage relief where a personal vehicle is used for business travel. It covers Mileage Allowance Payments (MAP), HMRC approved mileage rates, Mileage Allowance Relief (MAR), passenger payments and the tax treatment of overpayments. Ordinary commuting does not qualify. Relief depends on what your employer pays compared to HMRC’s approved rates. Incorrect claims or misunderstandings around commuting can lead to tax adjustments. Overpayments above approved rates may create a taxable benefit. If you use your own vehicle for business journeys and your employer does not fully reimburse you at HMRC’s approved mileage rates, you may be entitled to claim tax relief on the shortfall.

Business Mileage vs Ordinary Commuting

Business mileage applies to journeys undertaken in the performance of your employment duties. Ordinary commuting between your home and permanent workplace does not qualify for tax relief. Understanding this distinction is essential. Claims that include ordinary commuting may be refused.

Mileage Allowance Payments (MAP)

Employers may reimburse employees for business mileage using Mileage Allowance Payments (MAP). HMRC sets approved mileage rates. Payments made up to these limits are not taxable. If your employer pays at or below the approved rates, no tax is due on the reimbursement.

HMRC Approved Mileage Rates

HMRC’s approved mileage allowance rates apply per mile and vary depending on the type of vehicle used. These rates are designed to cover fuel, maintenance, insurance and general running costs of the vehicle. If your employer pays less than the approved rate, you may claim Mileage Allowance Relief (MAR) on the difference.

Mileage Allowance Relief (MAR)

If your employer reimburses you below HMRC’s approved mileage rate, you can claim tax relief on the shortfall. Relief is given at your marginal tax rate, not as a full reimbursement of the difference. For example:

• If HMRC’s approved rate is higher than what your employer pays, you calculate the difference per mile.
• You claim tax relief on that difference.
• The relief reduces your taxable income at your marginal rate.

Passenger Payments

You may receive an additional allowance if you carry fellow employees on the same business journey. Passenger payments must relate to qualifying business travel.

Overpayments and Tax Treatment

If your employer pays more than HMRC’s approved mileage rates, the excess may be taxable. Amounts paid above the approved rates can be treated as additional earnings and may be subject to tax and National Insurance. This creates potential benefit in kind exposure where payments exceed approved limits.

Record Keeping Requirements

You should retain accurate mileage records including:

• Date of each journey
• Start and end location
• Purpose of the journey
• Number of miles travelled

Poor or incomplete records may result in a claim being refused.

Backdating Claims

You can backdate Mileage Allowance Relief claims for up to 4 previous tax years, subject to the applicable time limits. Failure to claim within the time limit may result in lost relief.

Common Risk Areas

• Including ordinary commuting in mileage claims.
• Misunderstanding what qualifies as business travel.
• Failing to claim MAR when reimbursed below approved rates.
• Employers paying above approved rates without understanding tax consequences.
• Inadequate mileage logs.

Real-World Application

An employee drives to client sites using their own car and is reimbursed below HMRC’s approved rate. The employee claims Mileage Allowance Relief on the difference. An employer reimburses mileage above the approved rate. The excess is treated as taxable income. An employee attempts to claim for daily travel between home and a permanent workplace. The claim is not allowable as this is ordinary commuting.