If you're setting up your company expense policy, it's important to consider which categories to reimburse. One category that's often overlooked is company mileage allowances.
These allowances apply for work-related trips made by employees in their own vehicles.
The good news is that a certain 'approved amount' of Mileage Allowance Payments (MAPs) can be paid out without having to be reported to the tax authority. This is meant to offer an economical way for businesses to invest in the travels of their employees.
But how do you define MAPs for your company?
In this article, we'll explore what HMRC mileage allowance payments are, when trips qualify for tax-free mileage allowances, the HMRC mileage rates for 2023, how to keep track of company mileage allowances, and answer some frequently asked questions.
If your employees use their own vehicles for business travel, you can reimburse them for the expenses made in private cars free from tax. This reimbursement is called mileage allowance.
HMRC has created a scheme called Mileage Allowance Payments (MAPs) to simplify this matter. Without MAPs, companies would need to individually quantify how much wear and tear each private car has undergone, and add this to petrol costs, road tolls, and more. Instead, a flat rate is calculated per mile.
Approved mileage rates (AMRs) are the rates that HMRC considers reasonable for employers to pay their employees for using their own vehicles for business travel. The current AMR for cars and vans is 45p per mile for the first 10,000 miles. After that, the rate drops to 25p per mile.
If you're an employee who uses your own vehicle for business travel, you may be able to claim tax relief on the cost of your mileage. To qualify for tax-free mileage allowances, your journeys must pass the following tests:
However, there are several scenarios where you cannot claim tax-free mileage allowances. These include:
It's important to note that if you're self-employed, different rules apply, and you may be able to claim mileage deductions as a business expense on your self-assessment tax return. As an employer, you may also be required to report mileage payments to HMRC and deduct and pay tax through PAYE and Class 1 National Insurance.
If you have employees who carry a passenger on work trips, you can provide an extra 5p per mile to the driver. This payment only applies if the passenger is also traveling for business and is an employee of the company. These payments are "approved" and do not need to be reported to HMRC.
These rates are for the total amount traveled per employee, not per car.
If the employee uses multiple cars throughout the year, you still look at their total miles traveled. Similarly, if the employee uses one car and one motorcycle, you still add the total miles traveled between the two. You will then reimburse the employee at the appropriate rate for each, based on the number of miles traveled.
Here are a few added extras to keep in mind when you calculate company mileage payments:
For the 2023/2024 tax year, the HMRC mileage rates for business mileage are as follows:
Type of Vehicle
First 10,000 Miles
Above 10,000 Miles
Cars and Vans
45p
25p
Motorcycles
24p
24p
Bikes
20p
20p
For the first 10,000 miles per tax year, cars and vans are eligible for 45p per mile. From there, travel is at a rate of 25p per mile. For motorcycles and bikes, the rates are the same for all travel — it’s always 24p for motorcycles and 20p for bikes.
If you have a hard time calculating how much you can save on taxes, check out HMRC's official working sheet for the right mileage allowances.
It’s important to note that if the company doesn’t cover the full ‘approved amount’, your employees can apply to get Mileage Allowance Relief for the unpaid part.
If you use your own vehicle for business purposes, you may be able to claim back some of the expenses incurred. However, you need to keep accurate records of all business-related journeys to be eligible for reimbursement.
To ensure that you don't miss out on any tax refunds, it is essential to keep a mileage logbook that records all journeys you make for business purposes.
The logbook should contain the following information for each journey:
You need to keep these records for at least five years after the yearly tax submission date. The HMRC may request these logs during an inspection, so it is crucial to keep them up-to-date and organised.
If you manage a large number of employees or your employees frequently use vehicles for work purposes, you may consider using a centralised platform such as Spendesk to manage mileage allowances and general travel spending.
Spendesk's mileage feature allows employees to access smart payment methods, clear approval processes, and digital tracking of receipts and mileage claims, saving them time on the road.
In the office, the finance team can reconcile payments easily, integrated accounting, and get real-time insights into company spending. Spendesk helps you stay in control of your travel spending while ensuring that you comply with HMRC's regulations.
To make sure that you are eligible for reimbursement, you need to keep accurate records of all your business-related journeys. You can use a logbook, a GPS system, or a mileage calculator to keep track of your mileage. Simplified expenses can also be used if you run a small business. However, it's important to note that you cannot claim for any personal journeys you make.
If you use toll roads or bridges during your business travel, you can claim these expenses as well. Keep your receipts and records of these payments as they will be required as proof of your expenses.
If you have any questions about mileage claims, you can refer to the HMRC website's frequently asked questions section. The website provides detailed information on business travel expenses, mileage claims, and records.
HMRC defines business mileage as the distance travelled by an employee for work-related purposes, which includes travelling to different work locations, meetings, and training sessions. However, commuting from home to work is not considered for tax relief purposes.
The HMRC's 45p per mile allowance includes fuel costs, insurance, road tax, and general maintenance of the vehicle. However, any expenses that are not related to the business mileage, such as parking charges or fines, are not included.
To calculate the amount you are eligible to claim for mileage allowance, you need to multiply the number of business miles travelled by the approved mileage rate.
For example, if you have travelled 100 business miles, you can claim £45 (100 miles x 45p per mile). However, if you have travelled more than 10,000 business miles in a year, the approved mileage rate drops to 25p per mile.
The mileage rate for the current tax year remains the same as the previous year. The HMRC sets the mileage rate every year, and it is updated on the gov.uk website. It is essential to check the latest rates before making any claims.
To claim mileage allowance relief from HMRC, you need to keep a record of your business mileage and the expenses incurred.
You can claim the relief through your employer or by self-assessment. You need to provide evidence of the business mileage travelled, such as a logbook or receipts for fuel costs.
The company car mileage rate is different from the standard mileage allowance. It includes the cost of the vehicle, such as lease payments, depreciation, and maintenance. The company car mileage rate is also based on the CO2 emissions of the vehicle. It is subject to change every year.
If you are using a company car for business purposes, you should check with your employer about the mileage rate and any expenses you can claim.
Could you recommend an expense management solution that excels in handling mileage tracking?
ExpenseOnDemand is a leading expense management software in today's market. It offers a cloud-based solution known for its comprehensive capabilities. Featuring a user-friendly interface, ExpenseOnDemand excels with its mileage tracking feature, ensuring compliance with HMRC regulations. Moreover, transactions exceeding £10,000 are automatically handled. The platform’s pricing structure is flexible, with three segments catering to various user requirements. From thorough implementation for seamless setup to cost-efficient plans accommodating both casual and power users, ExpenseOnDemand provides value and scalability for businesses of all sizes.
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