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A business director questions how much she should be paying staff for using their own cars on business mileage

A small business company director wants to know the correct business mileage rate for paying staff in their own cars

RECENTLY my employees have been moaning about the pence per mile rate I pay them for business mileage undertaken in their own cars. At 25p a mile is this too little? And should I be paying them more?

Ralph Morton, editor of Business Car Manager, provides the answer on business mileage rates.

THERE is no right or wrong on this. It very much depends on your relationship with your staff and how much you feel able to reimburse them for the business mileage they perform in their own personal cars.

 

Businessman studying pence per mile ratesBusiness mileage rates for using a private car. Click here

 

 

To get technical for a moment, the name for the payment rate – which is tax-free by the way – is called the Approved Mileage Allowance Payment (which you might see shortened to AMAP).

It is there to cover the fuel costs, the cost of business insurance, depreciation and wear and tear while your employee is using their car on business. So the AMAP payment covers more than just the fuel element.

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Up until 05 April 2011, the Approved Mileage Allowance Payment was 40p per mile.

From 06 April 2011 this rate was increased to 45ppm.

This pence per mileage rate can be claimed for business mileage only; and after 10,000 business miles it drops to 25p per mile.

How do I calculate the business mileage rate?

For example, if your staffer travelled 14,000 miles a year in their own car on business for you, the calculation would look like this:

  • 10,000 miles @ 45p per mile = £4500.00
  • 4000 miles @ 25p per mile = £ 1000.00
  • Total = £5,500.00

The allowance is a personal allowance for the tax year. So if a staffer changes their car during the tax year, the AMAP allowance does not re-set to zero on the new car.

 

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The same business mileage allowance can also be paid to your staff who drive their own vans on business for you.

Do I have to pay the full rate?

No, you don’t. Your staff might not like it but you can pay less.

But there is no reason for them to miss out on the payment.

If you pay less, you should make it clear to your staff that they can claim the difference between what you pay – in this case 25p – and the Approved Mileage Allowance Payment (AMAP), which is 45p for the first 10,000 miles. So in the example you supplied, the difference is 20p per mile. This shortfall can be reclaimed as tax relief on your employees’  tax returns.

This tax relief on the pence per mile shortfall is called Mileage Allowance Relief.

 

What is mileage allowance reliefFind out more about the tax you can claim back here

 

 

You could also help  your staff reclaim any shortfall in mileage payments through HMRC’s Mileage Allowance Relief Optional Reporting Scheme (or MARORS). This is voluntary and although angled more for use by local authorities and health authorities, it might be useful as part of your negotiations with staff.

Are there any tax implications for business mileage payments?

Both from the perspective of your staff – and you as an employer – there is no tax payable, as long as the approved amount is not exceeded.

If, of course, you feel generous and go beyond 45ppm the employee’s excess will be liable to benefit in kind car tax and the excess amount will also be liable to National Insurance payable by you, the employer. Payments above the appropriate AMAP rate must be noted on form P11D.

Is there anything else I should know about business mileage rates?

The AMAP business mileage rates can only be paid for business car journeys undertaken in a private vehicle. These include journeys made between premises or journeys made to a temporary workplace. They do not include commuting.

AMAPs can be paid for staff:

  • using their own car;
  • using their own van;
  • if they take a passenger, add an additional 5p per mile;
  • for motorcycles it is 24p per mile; and
  • for cycles 20p per mile.

 

Not what you’re looking for?

  • Go here to find the pence per mile to claim if you drive a company car
  • Go here to find the tax relief available on business mileage
  • Understand more about pence per mile rates and AMAPs
  • Does your mileage record keeping satisfy HMRC?

 

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39 COMMENTS

  1. I work as a gas service engineer. I do 50,000 miles a year for work with all my tools and test equipment. I am thinking of using my own car,supplying all the fuel and expenses. What should I expect to clam per mile?

  2. If you use your own car for business, you will be able to claim 45 pence per mile for the first 10,000 miles, and then 25 pence per mile for each mile thereafter. These are tax free and known as Approved Mileage Allowance Payments (AMAPS).

    So, if you do cover 50,000 business miles, that will be 10,000 miles x 45ppm = £4500, and 40,000 miles x 25ppm = £10,000. A total of £14,500.

    However, you will need to make sure that you record your business mileage for each individual business journey if you are claiming at 50,000 miles a year in order to satisfy HMRC.

    You will also not be able to claim for any other motoring expenses if you use these AMAP payments.

    Before you take any further decisions, take advice from a professional adviser, such as your accountant.
    Ralph Morton, editor

    • I use my own car for work and are given 40.9p per mile plus a car allowance of £80 per month. I am taxed on the car allowance. My employer is looking to reduce the mileage to 25p per mile, can we claim the difference between 25p and the new allowance of 45p as the above example and pay tax on the car allowance as we do now?

      • Yes, you can claim the difference from HMRC.

        However, you should note that you will not receive the full difference, but only at the rate at which you pay tax.

        So if you claim for 5000 miles at 20p per mile (the difference between the AMAP rate and the 25p per mile you will be paid) that comes to £1000 x Tax Rate 20% = £200

        This may seem a bit counter-intuitive but it’s entirely logical.

        When your employer gives you a tax-free cash payment at the AMAP rate the tax you’re saving is the tax on that payment. So HMRC is giving you a tax break of 20% or 40% of that payment.

        If your employer gave you less than the AMAP rate HMRC will acknowledge this and give you back tax relief on that shortfall, ie the shortfall multiplied by your marginal tax rate. If they paid more they’d be subsidising the employer’s fuel costs at full market rate.

  3. Hi, my employer has asked me to supply my own van for work but he will buy the fuel. Am I entitled to claim mileage?

    Scott

    This is a really interesting question on business mileage, Scott. We’ve asked our expert Colin Tourick for an answer which we have published in our sister website http://www.BusinessVans.co.uk.

    You can read the full article by clicking here: What business van mileage can I claim?
    Ralph Morton, editor

  4. Are you allowed to pay different amounts of fuel allowance to different members of staff or does it have to be uniform across the company?

    We have junior salespeople who should use a pool car for meetings which has a fuel card associated with it. Some have been using their own car as a money making scheme (senior sales staff have a company car with fuel card). In order to encourage them to make more effort to arrange to have the pool car we are proposing to only pay 15 pence per mile for sales staff, but would like to maintain the 45 pence for admin staff. Is this allowable?

    Hi Andrew, I think you are confusing two different rates here.

    There are company car business mileage rates which are updated every quarter. These are known as the Advisory Fuel Rates and should be used by drivers supplied with a company car and a fuel card to avoid paying benefit in kind on free fuel. The latest Advisory Fuel Rates are here: Drivers get uplift in company car business mileage rates.

    Then there are the business mileage rates for using a private car on business – these are known as the Approved Mileage Allowance Payments – and are 45p per mile for the first 10,000 miles, 25p thereafter.

    In the case of your pool car, as it is purely used for business use, there should be no fuel rates applied – and all the VAT is claimable. However, you will need to make sure that you have a system in place for recording drivers and mileages and that the pool car is regularly inspected by a director responsible for the pool car.

    Perhaps the best way to encourage your junior staff to use the pool car correctly is to refuse any claims for using their own car and claiming 45p.

    Ralph Morton, editor

  5. So does that mean when you total up your mileage at 45p and 25p the total is deducted from cash earned weekly then pay tax on the remainder eg
    £900 pa £200 mileage, £100 hotels then pay tax on £600?

    Ralph Morton, editor, replies:

    Yes. The AMAPs are tax-free (not the hotels). Check with your accountant as travel expenditure has to be declared, though.

  6. Hi
    I use my private car for business use, i recieve a monthly amount on which i pay tax, then also claim for the mileage. The company pays me the 45p per mile, then in the next months salary they take back 30p per mile, so I only recieve 15p at the end of the day. Can i in this senario still claim the tax on the 30p even though in theory i have been paid the full 45p to start. I am assuming this way better suits the companies tax rather than mine!?

    Any help appreciated.

    Thanks
    Nige

    • Nige – this is not something we have come across before, so I asked our company car tax expert, Colin Tourick, to see if he could help.

      “This tax situation is a bizarre arrangement to be sure and it’s all down to how the revenue would view it. I view it as, well, bizarre. I can’t see why the employer is doing this but I can see risks. The Revenue will want to understand what’s actually happening here, what’s contractual and how the company is treating its side of this transaction. Is it a tax-saving device? If so I can’t see how it works. Sorry, can’t give a definitive answer on this one. In your shoes I’d tell the tax office what’s happening and ask them to confirm whether you can claim the 30p. It’s the only way you’ll get real comfort about what to do.
      Colin Tourick, Colin Tourick Associates

  7. A home care job is only offering 24p/ mile & I will need to travel to clients homes.
    Any advice please?

    Hi there, you should claim the difference in your annual tax return – Ralph Morton, editor

  8. Hi – all the comments above are really helpful.

    I am moving jobs and am being given a car allowance of £6000 pa. This will be taxed as PAYE, and essentially added to my salary to be able to buy a car (as I currently do not own one – I have a company car).

    I will do around 22,000 miles of which 20,000 will be business miles.

    Can I claim back at 40/25 for these miles even though I have a “car allowance” / 500pm for a car?

    Thanks, Greg

    Hi Greg, yes you can. Your car is private and sounds like it’s being run on a cash for car scheme. So the AMAP rates of 45p per mile for business usage over the first 10,000 miles, and 25p per mile thereafter apply – Ralph Morton, editor

  9. Using sub contractors and paying for fuel
    I have a business and we use sub contractors, we provide a van and pay for fuel, tax and insurance, is this legal? And where do we stand on private mileage?

    Hi Scott, I asked our tax expert Colin Tourick to respond to your question.
    Ralph Morton, editor

    There are a few things for you to consider:

    To your question “Is this legal” the answer is yes, it’s certainly legal in that there is nothing illegal per se about providing a van for someone to drive. But there are a few issues to consider.

    First, does your insurer know that these vehicles are being driven by non-employees? It’s definitely worthwhile telling them.

    Second, are you dealing with all of the necessary Duty of Care issues? Let’s take an extreme example of the things that could go wrong, just to highlight the key issues. When driving one of your vans one of the subcontractors becomes distracted and ploughs into a bus-stop queue. On investigation the police discover that the van hadn’t been serviced recently, the tyres were bald, there was a fault with the steering, the driver had been banned from driving and had been taking prescription medicines that had made them tired, no instruction had been given to the driver to check the vehicle daily and to report faults to you promptly and that the driver had never acknowledged (for example by signing the Business Vehicle Handbook) that they had responsibilities in relation to the vehicle.

    When the police investigate they won’t be too worried about the niceties of whether the driver is your employee. They will see that you supplied the van and will prosecute you as if the driver was an employee.

    Third, tax. Are you sure these are true sub-contractors, i.e. they are independent contractors, self-employed and definitely not employees? If so, the provision of a van for business mileage is largely a matter between you and the sub-contractor. It’s a tool for them to do work for you, in much the same way that if you engaged an accountant to work in your office for a couple of weeks and they used your PC, that PC would be a business tool.

    The private mileage issue is a different matter, however. You are required to report to HMRC whenever you provide remuneration or benefits to anyone and in this case the cost of the private mileage is definitely a benefit.

    And finally, are you sure HMRC would view these as sub-contractors? Have a look at http://www.hmrc.gov.uk/working/intro/empstatus.htm and see if these people really are self-employed in the eyes of HMRC. If they are really employees whose employment is dressed up to look like self-employment, and this has been going on for a long time, you should seek professional advice on what to do next because you may well have inadvertently built up a substantial liability for PAYE and NIC that HMRC could claim from you. One of the basic tests of self-employment is that the contractor provides the main items of equipment to do their work. Yet you are providing a van. So you can see why I raise this issue.
    Colin Tourick, Colin Tourick Associates

  10. Should I be paid to transport equipment and tools for my job?
    My employer currently pays us 40.9 pence per mile and a essential user car allowance of £80.00 per month for using our own vehicle to carry equipment and tools that belong to the employer.
    In a recent restructure they are proposing to only pay us 25 pence per mile, and scrap the £80 per month car allowance.
    I understand that we can apply for the difference up to 45pence per mile from HMRC.
    But my main question is that should we not still be paid for transporting employers equipment and tools to carry out my job?
    As explained this is not a company car or van but my own vehicle which is run out of my own pocket.

    Thank you for your question, John. I asked our tax expert, Colin Tourick, to respond below.
    Ralph Morton, editor

    There is no requirement for the employer to pay anything more than a ppm they wish. There’s no tax issue here at all. This is simply an matter of the amount of car allowance that an employer and employee agree between them. It’s an employment and remuneration issue not a tax issue.
    Colin Tourick, Colin Tourick Associates

  11. Hi

    I am a self employed sub contractor who invoices companies direct. I receive 25p/mile mileage allowance (after the 1st 40 miles of a return journey) which I bill for on my invoice.
    i.e. Total mileage of a return journey 140miles – 40miles = 100 @ 25p = £25.00 charged.
    I believe I can claim back the difference between the AMAP and the 25p for the 100 miles, therefore 100 x 20p = £20.00 plus 40 x 45p for the mileage not charged for, am I correct in my assumption?
    Also, because the mileage (£25.00 in the above case) is included in my invoice I pay income tax on it. Should this be the case or should I bill them separate from my labour invoice?

    Many thanks
    Rich

    Hi Rich, I think I can help on this one.

    The mileage you bill to your contractors is included on your invoice and will be subject to tax. However, you should claim the full 45p per mile from your personal tax allowance for all of your business mileage – which is tax free. Talk to your accountant who will sort this out for you.

    Ralph Morton, editor

    • Thank you so much for your reply Ralph.
      You are spot on as I have had this confirmed by an accountant.
      This adds up to in my case an extra £1800 tax allowance so around £360 less tax to pay!
      Many thanks again for your expert advice.

      Rich

  12. Hi
    I am confused about the agreed car allowance for business mileage.
    I am using my own personal car for work.
    Currently I am being paid 50ppm and £0 car allowance. I wanted to check if this is OK or should I be receiving a taxable allowance as well?
    Also, will I have to pay tax from my 5ppm excess by the end of the year?
    Thanks,
    Andy

    Hi Andy, I can help you with this question:

    The pence per mile allowance is to cover the costs of your business mileage – so there is no reason for your employer to pay you a car allowance on top.

    However, the tax-free amount is 45p per mile; so you are correct in your assumption that you will be taxed on the additional 5p per mile. If you travel more than 10,000 business miles a year in your private car, then the rate drops to 25p per mile – in which case you will be taxed on the additional 25p for every mile travelled above 10,000 miles.

    I hope that helps.

    Ralph Morton, editor

  13. Hi, I am a support worker in the community and I travel to different places each day. My work has been paying us 45p per mile in between supports when we don’t have any service users in our car, but now they are reducing it to 15p per mile – is this legal?

    They have also said they are going to pay us for the first 40 mins of travelling at minimum wage to counteract the 30p loss per mile. Is this allowed?

    Thanks, Charlotte.

    Hi Charlotte,
    I don’t believe your company is doing anything that isn’t legal – they are simply changing the methods of reimbursement for you.

    However, you shouldn’t miss out as you can still claim the difference on all your business mileage in your annual tax return (ie the 30p per mile).
    Ralph Morton, editor

  14. I get paid 45p per mile by my employers when I am travelling between the branches. Am I entitled to fill in a p87 form to get tax relief for this?

    Thank you

    Hi Heather, perhaps I can help on this one.

    Assuming you are using your own car for business, you are being paid the 45p per mile AMAP rate which is a tax-free amount – so I don’t think p87 applies. You might want to read the following stories which will help: Tax: Business mileage rates for using a private car (AMAPs) and What is mileage allowance relief (MAR)?.
    You should also check the position with your company’s HR or finance department for clarification – or speak to your accountant if you have one.

    Ralph Morton, editor

  15. My partner has to buy a car because his job has changed and he needs to travel up and down the UK for his new role. His boss pays him £200 car allowance (because his counterparts have company cars) but he is only paying him 12p per mile for his diesel which doesn’t even cover the costs of the miles he is doing.
    What can he do about it and can he claim the difference through tax relief?
    I’m confused….

    Hi Anna, let me help with your question.

    You shouldn’t be confused because you have answered your own question. You can claim the difference by using tax relief. This is called Mileage Allowance Relief and allows you to claim the difference between the 12p per mile being paid and the full tax-free amount of 45p for the first 10,000 business miles. Read more about what you should claim in our story What is mileage allowance relief (MAR)?

    Ralph Morton, editor

  16. Hi, I will be travelling around 2,250 in my personal car. I have been advised that I will be receiving 40PPM – is there any way I can claim 45PPM or is this up to my boss to decide? I look forward to reading your response. Kind Regards. Ben

    Hi Ben, thank you for your enquiry. I trust this will help.
    It is possible that your boss remembers the old pence per mile rate which was 40p. However, this was increased to 45ppm from 06 April 2011. It would be worth asking your boss if you could be paid the current rate – you could reference this article: Tax: Business mileage rates for using a private car (AMAPs).

    If not, then you can claim the difference on your tax return. In this case it will be the shortfall (ie 5ppm) x the number of business miles x your marginal rate of tax (20% or 40%).

    I hope this helps.

    Ralph Morton, editor

  17. If the proposed trip is (say) 100 miles, hiring a hire car for the day (say £23 inclusive for a decent 5-door, with free pick-up from home or work) and 11p per mile at most for fuel will cost you £34 as against £45 at HMRC approved rate and save you the trouble of inspecting the employee’s car for roadworthiness, tax and insurance.

  18. I work for a well-known company and which was paying me 45p a mile for meetings and to cover journeys to other branches. I have now gone over 2000 miles and they are now saying they will only pay me 11p a mile. Is this allowed? I use my own private car.

    Thank you for your note, Karl. Your company can pay the allowance they wish, I’m afraid. However, all is not lost. You can still claim the shortfall in your annual tax return by using the Mileage Allowance Relief
    Ralph Morton, editor

  19. I normally travel 25 miles to work, if I detour to visit a client or go out during the day to visit clients, I only claim the extra miles travelled.
    When I went straight to a business meeting and did not go to my usual place of work can I claim the full amount or only the difference between my usual commute?

    You can claim the full amount of miles because it is not your usual place of work.
    Ralph Morton, editor

  20. My boss pays me between 15-17ppm. I fill the milage form and send the fuel bills with it which he pays me for, on average it works out 12-14 ppm.
    Is he claiming 45 ppm from government and pays me 12ppm?
    Is it legal?
    There is no any extra tear and Wear on the van that he pays.
    If I’m self employed and work for him over 2 years have good salary can he refuse to pay any expenses on the van I do for him 30k + in miles a year I go through 3 services and I have to pay it out of my pocket.

    Hi,
    There is nothing illegal going on. Your boss is reimbursing you at the rate he wishes to pay you. You can reclaim any shortfall in your tax return. As you are self-employed we’re assuming you have an accountant who will be able to advise.
    To recap, the business mileage rates are 45p per mile for the first 10,000 miles and then 15p per mile thereafter. These rates cover the wear and tear on your vehicle, the additional servicing and business insurance.

    Ralph Morton, editor

  21. Does an employer have to pay employees for deprecation of their car or is it just fuel?

    Hi Barry
    The money paid out for their business mileage in a personal car – known as AMAPs – covers the cost of fuel and an element towards business use insurance, depreciation, and so on. So the payment covers more than just the fuel.

    I hope that makes sense for you.
    Ralph Morton, editor

  22. Should we / Can we claim the first 10,000 miles each year?

    You can claim the first 10,000 miles – but you should keep a record of all your business mileage
    Ralph Morton – editor

  23. Hi.

    I’m moving jobs and have been offered an annual £6k car allowance and also a fuel card that I can use for all business and personal use. I will do circa 25k business miles a year and 5k personal. Additionally I’m a 40% tax payer. I’m really struggling to understand the impact of using the fuel card for my own personal use, am I better off not using it at all and only using it for business miles?

    Thanks massively for any advice you can give!

    Our tax expert, Colin Tourick, advises this:
    “If any free private fuel is supplied for use in your own car, then you will be subject to tax on the total value of private fuel supplied, which includes the VAT.

    “You should almost definitely stop taking free private fuel.”

  24. Some advice please. I use my own car for travelling to and from client meetings, I would imagine that this year I shall cover approx 5000 – 6000 miles. However my company only pays 25p per mile. Am I able to claim any extra?

    Yes you can. You can claim the difference between the AMAP rate of 45p per mile and the 25p per mile you have been paid. See our story Mileage Allowance Relief.

  25. My husband has had to use his own car to go on a course for his job & his employer has only paid him 32p per mile. He does not do tax returns as he is normal 20% tax rate payer so taxed at source. Can he demand that the company pay him the full 45p? How does he claim it back if he does not do tax returns? He also had another employee passenger as well.

    You can claim an additional 5p per mile for taking a passenger. If you don’t fill out a self assessment form you can claim the difference with form P87 if the amount is below £2500. You can find more information here: https://www.gov.uk/tax-relief-for-employees/how-to-claim
    Ralph Morton, editor

    • Hi, I have car on a Car Ownership Scheme. Can I claim for the difference between 45p/mile and the 14.9p/mile that I get back from my employer?

      Yes you should be able to on your annual tax return using Mileage Allowance Relief

  26. Can an employer pay staff a set amount for mileage ie, 25p but then charge clients the full 45p? Is this legal to do so?

    That is their business and they are quite in their rights so to do. Staff who use their private cars on business can claim any shortfall using Mileage Allowance Relief.

  27. I have a company car and I’m told I will get 6p a mile. Is that legal? My previous employer gave me 25p per mile. 6p a mile doesn’t seem worth it.

  28. I am a director of a LTD company which provides me with a car. I am taxed through PAYE on the BIK and supply my own fuel, paying 11 p per mile for business miles. However, I also work for another company and incur business mileage. What rate should this be paid at 45p or 11?

    As your car isn’t private, you are not incurring any of the costs normally associated with running a private car on business – such as depreciation, and business insurance.

    Therefore you should only apply the 11p per mile rate.
    Ralph Morton, editor

  29. Does anyone have a suggested towing mileage rate? There is increased wear and tear, and fuel consumption increases by about a third. We use 45p per mile when not towing and, are considering 60p per mile when towing does this sound fair? HMRC does not seem to have a rate for towing.

    That is an interesting point. If your employees are using their own vehicle, then the 45p per mile AMAP rate is a standardised allowance. Anything above this is taxable. However, it would be worth contacting your local HMRC office to see what they say as you have a valid case for paying more. If you do pay more, ensure you have HMRC approval.

    I hope that is some help.

    Ralph Morton, editor

    • That is an interesting point. If your employees are using their own vehicle, then the 45p per mile AMAP rate is a standardised allowance. Anything above this is taxable. However, it would be worth contacting your local HMRC office to see what they say as you have a valid case for paying more. If you do pay more, ensure you have HMRC approval.

      I hope that is some help.

      Ralph Morton, editor

  30. Can you help? I work for a construction company that has various sites dotted around Devon. We pay mileage to staff travelling to and from sites when they exceed a 15 mile radius away from head office in any direction. However, the system is flawed because if someone lives outside of the 15 mile radius but is only travelling 5 miles to a site they can claim for it. Conversely, if someone lives on the complete opposite side of the 15 mile radius and driving to the same site they can only claim for the mileage either side of the radius. The other concern is the current scheme does not discourage people from moving further away from work, because there is the expectation we will pay for their mileage. Can you let me know if there is a fairer scheme that is cost effective for the company? Thank you

  31. Hi, I currently work for an employer who only pays me 15p a mile. I have been trying to figure out where I go in order to claim back the expenses I’m owed. Whom do I contact and what form do I need to fill in order to start the claiming process?

    Hello Mark, if you are claiming for mileage in your own car used for business you need to do this on your self-assessment tax form. There is more help here about claiming Mileage Allowance Relief.
    Ralph Morton, editor

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