HMRC mileage rates – small business tax allowances explained

By claiming business mileage rates, firms can reimburse their employees if they use their own vehicles for business travel. This can greatly improve staff satisfaction and also generate large savings for businesses – particularly as fuel costs continue to rise amid the cost of living crisis, leading companies to rely on money-saving tools such as business fuel cards.

In the 2024/24 tax year, mileage rates are currently set at 45p per mile for the first 10,000 miles for cars and vans. But, as this guide will show, there’s a bit more to it than just that. The latest June 2023 update has also lowered the amount you can claim back for diesel vehicles.

There is quite a lot to understand if you choose to request a mileage rate rebate. Whether you can claim, and how much, depends on an assortment of factors that can require a lot of admin to calculate. Electric vehicle rates are also getting more generous as the UK prepares to ban sales of new petrol and diesel cars by 2030.

Below, we’ll go through all the ins and outs of mileage rates and how they’re calculated. And, if you’re looking for other ways to save on fuel costs, we’ll highlight the alternative solutions available, such as fuel cards.

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What are the HMRC mileage rates 2024?

Currently, HMRC mileage rates are set at 45p per mile for the first 10,000 miles for cars and vans. After 10,000 miles, the amount that businesses can claim back drops to 25p per mile.

Business mileage rates are updated by HM Revenue and Customs (HMRC) every year and published on the gov.uk website. Here are the approved HMRC mileage rates:

As the above table shows, car and van drivers can claim back up to the ‘approved amount’ of 45p from HMRC for every mile travelled for business use, up to 10,000 miles. After 10,000 miles, the amount drops to 25p.

For fully electric, or hybrid, vehicles the mileage allowance is the same as for a petrol or diesel car.

How often do HMRC mileage rates change?

HMRC mileage rates have stayed constant for the past 12 years despite pressure for them to be increased.

Unison, a public service union, has called for the government to increase HMRC rates for mileage to more accurately reflect the rising cost of owning a car. Since 2011 (the last time AMAPs rates were increased):

• The cost of fuel has risen by 43%
• Motoring costs have risen by 39%
• Vehicle maintenance costs have risen by 48%
• ULEZ charges, designed to improve air quality in cities, have also been introduced to more locations

However, to date the government has not indicated that it intends to increase AMAPs rates. The issue was not mentioned in the 2023 Spring Budget on 15 March.

How do the HMRC mileage rates work?

HMRC has come up with a scheme called Mileage Allowance Payments (MAPs) to make the process of claiming back travel expenses easier for employers or the self-employed.

So, if you hear someone talking about MAPs, this is the official name for what you pay your employee for using their own vehicle for business journeys.

How do I report mileage rates to HMRC?

As long as you’re under the approved HMRC mileage rate amount, you’re allowed to pay your employee a certain amount of MAPs each year without having to report them to HMRC.

The approved amount is calculated by multiplying the employee’s business travel miles for the year by the rate per mile for their vehicle.

Example: An employee travels 12,000 miles for work using their own vehicle. The employer can subsidise their fuel and vehicle running costs by claiming MAPs to the approved amount of £5,000 (10,000 x 45p plus 2,000 x 25p).

However, businesses can set their own limits on how much they choose to pay back their employees.

You might choose not to cover your employees for the full approved HMRC mileage rate (such as if you choose to pay back just 40p per mile, rather than the permitted 45p).

In this situation, the employee can claim tax relief on the remaining balance (called Mileage Allowance Relief, or MAR). We’ll explain more about this later.

When do I need to report mileage rates to HMRC?

Regardless of how much CFOs choose to cover, if an employee has travelled more than 10,000 miles, employers must report this to HMRC using the form P11D.

Similarly, if you choose to pay your employee any amount per mile above the ‘approved amount’ of 45p per mile will be classed as a benefit. This means it will also need to be reported on a P11D and then taxed.

Can I claim mileage allowance payments?

MAPs are available for any employee that uses their own vehicle for business travel, otherwise defined as:

• Travel between a permanent workplace and temporary work, such as to a meeting
• Travelling between temporary workplaces, such as client visits
• Travel between two workplaces owned by the same employer
• If you work from home, travel to a workplace due to the requirements of the job

Essentially, you can only not claim MAPs on any journey taken for personal reasons. That includes commuting from home to work.

Can I claim mileage allowance payments for carpooling?

Yes, businesses are allowed to claim mileage allowance payments if their employees carpool (or car share) into work. However, there are some rules that must be followed for a claim to be successful:

• Your employees must be sharing either a car or van
• Your employees must be on a business journey
• They must be sharing the vehicle with another employee at your firm (to reiterate, this does not include commuting between home and work)

Should staff meet the above requirements, employers can pay them what’s called ‘passenger payments’ by claiming up to 5p per mile, tax-free. This is a good way to encourage carpooling and a reduction of carbon emissions.

You do not have to report passenger payments to HMRC.

What is mileage allowance relief?

Mileage allowance relief ensures that, even if you choose to reimburse your employees for fuel costs at less than the standard rate upfront, employees will automatically be able to claim tax relief on the remaining balance.

Mileage allowance relief should be applied for at the end of each financial year on April 5. To calculate how much your employees can claim tax relief for, you need to find the difference between the amount you covered your employees for, and the approved amount.

Example: An employee travels 8,000 miles for work using their own vehicle. The employer chooses to cover their fuel and vehicle running costs by claiming back 40p per mile in total as a business expense. In total, they claim back £3,200 (8,000 x 40p).

In this case, the approved amount would be £3,600 (8,000 x 45p). As a result, the employee can then claim MAR on the remaining balance of £400 (8,000 x 5p).

There are a few important records that your employees will need to keep to be able to claim mileage allowance relief. Be sure to communicate them to your staff to ensure they are fully knowledgeable about the process.

HMRC will ask for:

• The date of the trips
• The start and end address of each trip, including postcodes
• The distance travelled
• Amount of mileage allowance you have received from your employer

How else can I save money on travel costs?

Petrol prices remain at a record-high rate, and we know many of our readers are concerned about how to reduce their business travel costs. As well as claiming MAPs, you can also use fuel cards to reduce your bill. Essentially, these can be thought of as business credit cards, used exclusively for fuel.

Drivers fill up with discounted fuel at stations in the fuel card’s network, which include major chains like Morrisons and Tesco, and pay using a designated Chip and PIN card.

You’ll need a fuel card for either every driver in your company, or one for every vehicle in your fleet (if your vehicles are used by multiple drivers).

Fuel cards are a little-known business tool but they also boast huge savings of up to 10p per litre. Plus, most small business fuel card providers charge a low annual rate of around £1 per month – which you’ll easily make back.

Other benefits include real-time insights and bespoke reports on performance and fuel efficiency. Adding or cancelling cards is also simple, and you won’t need to pay anything to the employee as they can handle the entire transaction.

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What are HMRC fuel rates in 2024?

HMRC fuel rates, also known as advisory fuel rates (AFRs), only apply to employees using a company car (these rates do not apply to vans). You can use fuel rates to:

• Reimburse employees for business travel in their company cars
• Reclaim the cost of fuel if employees use company cars for private travel

AFRs are complicated to calculate. They depend on certain factors such as engine size and the type of fuel used.

HMRC reviews these rates quarterly, so it’s a good idea to keep an eye on the gov.uk page to check there are no changes. In March 2023, fuel rates were raised to reflect the less expensive cost of filling up:

However, in June 2023, diesel rates were cut drastically as a way to encourage more people to invest in electric vehicles. The new rates mean that a vehicle with an engine size of over 2000cc can now claim just 18p per mile back, compared to 19.9p.

How do I claim advisory fuel rates?

To claim tax relief on the money spent for business trips in a company car, your employees will need to keep records to show the actual cost of the fuel. Employers can then use HMRC’s advisory fuel rates to claim these as tax-free business expenses.

Example: an employee buys petrol for a company car with a 1,400cc engine and records 300 miles of business usage. The employer would then reimburse them £42 (at 14p a mile), tax-free.

On the other hand, if an employee filled up a company account to then travel 300 miles for personal reasons, they would be required to repay their employer £42.

As a business owner, you can choose to set your own reimbursement rates. For instance, if you use more fuel-efficient vehicles, you may choose to set a lower figure per mile.

However, if you choose to pay a rate that is higher than the approved business mileage rates shown above, and you cannot show a vehicle is actually costing more to run per mile, the excess will be considered taxable profit by HMRC.

HMRC electric car mileage rates 2024

If your business owns a fleet of fully electric or hybrid vehicles, the rate is 9p per mile, rising from 8p earlier this year.

At the moment, hybrid cars can only be treated as either petrol or diesel cars for advisory fuel rates, despite pressure from campaigners to classify them separately.

Next steps

Offering employees mileage allowance is a brilliant way to build trust amongst your staff, as well as reduce cost pressure during the current economic crisis.

But, while we’ve tried to simplify the process as best we can, claiming for mileage allowance and fuel rates is still a confusing and admin-heavy topic to get your head around. Storing months of physical receipts is just one of many pain points for employers and workers.

That doesn’t mean you have to increase your fuel budget. Fuel cards are an excellent solution that can be implemented quickly across your business to start saving you money straight away.

Ultimately, you’ll get the biggest cost-benefit by using both of these schemes. However, as a first step, we recommend fuel cards to strengthen your cash flow, save money, and reduce the time taken on fiddly administration tasks.

Get started today with our fuel card cost comparison tool to find the best deal for your business.