Mileage allowances what can you pay tax free
Mileage allowances can be one of the most confusing areas of UK tax and employment law. Whether you’re a sole trader claiming expenses, an employee being reimbursed by your employer, or a business owner setting up a mileage scheme, getting it right matters. Pay too much tax-free, and HMRC will want a word. Pay too little, and your staff might feel undervalued. Let’s untangle the rules so you can understand exactly what you can pay without triggering a tax bill.
What is the Approved Mileage Allowance Payment (AMAP)?
The Approved Mileage Allowance Payment is HMRC’s official rate for reimbursing employees (and directors) for using their own vehicle for business purposes. These are set rates that you can pay without any income tax or National Insurance complications—provided you don’t exceed the limits and you keep proper records.
For the 2024/25 tax year, the AMAP rates are:
- Cars and vans: 45p per mile
- Motorcycles: 24p per mile
- Bicycles: 20p per mile
These rates apply to the first 10,000 miles in a tax year. After that, the rate for cars and vans drops to 25p per mile. This is an important threshold to remember, particularly for field-based staff or those with lengthy commutes between sites.
Crucially, these are maximum rates. You can pay less if you choose, but paying more creates a taxable benefit for the employee.
The crucial distinction: employees vs. sole traders
Employees and directors: If you’re paying an employee or director using their own vehicle, stick to the AMAP rates and you’re in the clear. There’s no income tax or National Insurance to worry about. However, you must be able to evidence that the journeys were genuinely for business purposes—a simple mileage log with dates, destinations and business reason will suffice.
Sole traders and the self-employed: If you’re self-employed, you can’t claim the AMAP in quite the same way. Instead, you can either claim the actual costs of running the vehicle (fuel, maintenance, insurance, depreciation) through your accounts, or you can use the simplified expense method. Under the simplified approach, you claim 45p per mile for the first 10,000 miles and 25p per mile thereafter—but this covers all running costs in a lump sum. Many find this simpler come tax return time.
What records do you need?
HMRC is clear: you must keep records. A spreadsheet, notebook, or mileage app will do the job. For each journey, note:
- The date
- Starting point and destination
- Business purpose of the journey
- Mileage covered
This needn’t be elaborate, but it must be contemporaneous (recorded at the time, not reconstructed months later). HMRC does accept reasonable estimates for short periods if records are lost, but don’t rely on this. A simple log is your best defence should an inspection occur.
Watch out for the pitfalls
Personal commuting: The journey from home to your normal workplace isn’t a business expense, even if you work irregular hours. However, travelling from home to a temporary workplace, or from the office to a client meeting, does count.
Fuel allowance on top: Some employers try to pay mileage and a separate fuel allowance. This doesn’t work. The AMAP is the total reimbursement. Anything extra becomes a taxable benefit.
Overpayment: If you pay above the AMAP rate, the excess is treated as earnings and subject to income tax and National Insurance. It’s also not deductible as a business expense.
Mixed-use vehicles: If an employee uses the same vehicle for personal and business journeys, only claim mileage for the business portion.
Getting it right in practice
If you’re an employer running a mileage scheme, be transparent with staff. Show them the rates and explain the rules. If you’re self-employed, decide early whether you’ll use actual expenses or the simplified method—the choice can affect your tax position significantly. Keep it consistent year on year unless circumstances genuinely change.
One final thought: these rates were last updated in 2011. Whilst inflation has moved on considerably, HMRC hasn’t adjusted them. This means the 45p rate is increasingly generous, particularly for fuel-efficient vehicles. It’s worth reviewing your actual costs periodically to ensure the scheme remains fair to both employer and employee.
For tailored advice, contact Severn Accounting — we’re here to help.