What is the mileage allowance?
Mileage allowance is the amount per business mile HMRC lets employers pay tax-free, or self-employed people claim, for using a private vehicle for work.
What mileage allowance means
When employees or directors use their own vehicle for business journeys, the employer can pay approved mileage allowance payments without tax or National Insurance. The HMRC rates are:
| Vehicle | First 10,000 business miles | Over 10,000 miles |
|---|---|---|
| Cars and vans | 55p | 25p |
| Motorcycles | 24p | 24p |
| Bicycles | 20p | 20p |
An extra 5p a mile can be paid tax-free for each fellow employee carried as a passenger on a business trip. Business journeys do not include ordinary commuting between home and a permanent workplace. Sole traders can use the same rates as a simplified expense instead of claiming actual vehicle costs, provided they have not claimed capital allowances on the vehicle.
Example
A director uses his own car for 12,000 business miles in the tax year.
| Miles | Rate | Amount |
|---|---|---|
| First 10,000 | 55p | £5,500 |
| Next 2,000 | 25p | £500 |
| Total tax-free | £6,000 |
The company can pay him £6,000 tax-free and deduct it for Corporation Tax. If it paid only 30p a mile, £3,600 in total, he could claim mileage allowance relief on the £2,400 shortfall through his tax return or on form P87.
What the rates cover
The approved rates are meant to cover all the costs of running the vehicle: fuel, insurance, servicing, repairs and depreciation. You cannot claim the mileage rate and also claim those costs separately. Parking, tolls and congestion charges on business journeys are separate and can be reimbursed on top.
Keep the log as you go; reconstructing a year of journeys afterwards is hard to defend.
Why it matters for your business
For many directors, mileage is one of the simplest legitimate ways to take money out of a company tax-free. The rates apply to electric cars too. HMRC expects a log of each journey: date, start and end points, purpose and miles. Without one, a claim is hard to defend. Payments above the approved rates are taxable and must be reported. Cloudkeepers can set up a simple mileage log for clients.
Mileage allowance vs company car
If the company owns the car, mileage allowance does not apply. Instead the driver pays tax on a benefit in kind, and the company can reimburse business fuel at HMRC's advisory fuel rates.
Common questions
Yes, if it is your own car. The approved mileage rates are the same whatever the fuel type. The separate advisory electricity rate is for reimbursing employees who drive a company-owned electric car on business.
Usually, if the client's premises is a temporary workplace. Journeys from home to a permanent workplace are commuting and do not count. For contractors working at one site for over 24 months, or where IR35 applies, the rules are stricter.