Business travel mileage for employees’ own vehicles
4 mins
Our experts at DSR Tax Refunds know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
How should you treat business mileage in employees’ own vehicles?
If you pay mileage to your employees to cover the cost of them using their own vehicles for business travel, you are expected to report this to HMRC and you will have tax and National Insurance obligations as a result. These mileage expenses are covered by two HMRC schemes – one for the tax side of things and the other to deal with the National Insurance obligations.
How is the tax side treated?
Payments to employees above a certain amount need to be reported to HMRC and you will need to deduct and pay tax accordingly. They are called Mileage Allowance Payments (MAPs) and refer to payments that employers make to their employees in relation to them using their own vehicles for business purposes.
You’re allowed to pay your employees for a certain amount of business travel mileage without having to report these MAPs to HMRC – this is what is known as an ‘approved amount’. To calculate this approved amount, you need to multiply those business travel miles clocked up by your employee by the rate per mile for their vehicle as shown in the following table:
| Rates per business mile – tax | ||
| Type of vehicle | First 10,000 miles | Above 10,000 miles |
| Cars and vans | 45p (40p for tax years prior to 2011/12) | 25p |
| Motorbikes | 24p | 24p |
| Bicycles | 20p | 20p |
Using these mileage rates would give you the approved amount. Let’s look at anexample. Bill travels 15,000 miles in his own car for his job. His approved mileage amount would be 10,000 x £0.45 plus 5,000 x £0.25 which equals £5,750. If Bill’s employer only paid his approved amount, those MAPs wouldn’t need to be reported to HMRC. However, if Bill’s employer paid mileage amounts above this approved amount, that amount above the approved amount would need to be reported to HMRC.
For anything above the ‘approved amount’, you need to report this to HMRC on your P11D form and you will need to add anything above the approved amount to the employee’s earnings and deduct and pay tax through payroll.
If you pay below the ‘approved amount’, you don’t need to report anything to HMRC nor pay anything extra in tax. Your employee will be able to claim tax relief on the difference between what you pay for business travel mileage and the MAPs amount. The tax relief is called Mileage Allowance Relief. If you wish, you can also make separate optional reports to HMRC of any such unused balances. The scheme is called Mileage Allowance Relief Optional Reporting Scheme (MARORS) but as the name suggests, it’s optional so you don’t need to do this if you choose not to.
What are the rules for National Insurance?
You may have to deduct and pay National Insurance on payments related to relevant motoring expenditure (also known as RME).
RME consists of:
- Mileage Allowance Payments (MAPs)
- Payments that would otherwise be classed as MAPs but are paid to someone other than the employee but are intended for the employee’s benefit
- Any other cash payments you make to your employee in relation to the use of their own vehicle for business travel.
There is what is known as a ‘qualifying amount’ – this is the amount of RME your employee is entitled to receive before it needs to be reported to HMRC and National Insurance needs to be paid in relation to it. To calculate this qualifying amount, multiply your employee’s business mileage by the rate per mile shown in the following table:
| Rates per business mile for National Insurance | |
| Type of vehicle | Each business mile (no upper or lower thresholds) |
| Cars and vans | 45p |
| Motorbikes | 24p |
| Bicycles | 20p |
So, if Peter drives 1500 miles on his motorbike and as his employer, you pay him an RME payment of £360 (1500 x £0.24) this would equal the qualifying amount so there would be no need to report this or take any National Insurance considerations into account.
If you make any payments in excess of the calculated RME qualifying amount, you do need to report this to HMRC. You need to add the excess amount to their other earnings for that earnings period when calculating their Class 2 National Insurance through your payroll. You don’t take their PAYE tax into account now though as that is accounted for elsewhere.
There’s no equivalent of Mileage Allowance Relief (MAR) for National Insurance and nor can you carry forward any difference between RME and the qualifying amount to any later earnings period.
What are passenger payments?
If your employee carries another colleague in their vehicle for business purposes, you are allowed to pay them a passenger payment of up to 5p per mile tax-free. If the amount you pay is 5p per mile or less, there is no need to report this to HMRC or take it into consideration when calculating PAYE and National Insurance deductions. Like National Insurance though, there’s no equivalent of the Mileage Allowance Relief (MAR) for passenger payments, nor can it be carried forward to a later earnings period.
How can DSR Tax Refunds help?
We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful. Our team of experts at DSR Tax Refunds are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
This page was last updated on 06/11/2018.