If you or your team use a personal car for business travel, mileage is one of those areas that sounds straightforward — but is surprisingly easy to get wrong.

Business owners tend to either underclaim (and miss legitimate tax savings) or overclaim (and create risk if HMRC ever asks questions).

Here’s a practical guide to the rules, the rates, and the common mistakes.

What mileage allowance actually covers

A mileage allowance is a tax-free reimbursement when an employee uses their own vehicle for a business trip.

HMRC sets fixed rates per mile, known as Approved Mileage Allowance Payments (AMAP), and these rates are designed to cover all the running costs of the vehicle, including:

– fuel

 

– insurance

 

– MOT

 

– servicing

 

– repairs

 

– depreciation

 

Parking fees, motorway tolls and congestion charges can be claimed in addition to these mileage rates.

The HMRC mileage rates

The current AMAP rates are:

– 45p per mile for the first 10,000 business miles in a tax year

 

– 25p per mile for anything over 10,000 miles

 

 – Plus 5p per mile for each colleague you carry on the same business journey

 

Commuting doesn’t count.
Mileage only applies to valid business travel, not for travelling to your normal, regular place of work.

What counts as business travel?

In most cases, journeys between different work locations or trips to client sites qualify.

Travel to a temporary workplace also qualifies. A workplace is considered temporary if:

– You’re there for less than 24 months, and

 

– You spend less than 40% of your working time at that location

 

If either threshold is exceeded, HMRC no longer views the location as temporary, and mileage stops being claimable.

What evidence do you need

You’ll need a clear record of each journey. HMRC can (and does) ask for this.

A mileage log should include:

– start and end locations

 

– purpose of the journey

 

– total miles travelled

 

– date

 

Employees do not normally need fuel receipts to claim mileage.
Fuel receipts are only required where the business is reclaiming VAT using Advisory Fuel Rates (see below).

If you’re an employee

– If you’re paid mileage at or below the HMRC rates, it’s tax-free.

 

– If you’re paid less than HMRC rates, you can claim Mileage Allowance Relief (MAR) on the difference.

 

If you’re paid more than HMRC rates, anything over the approved rate is treated as earnings, and tax/NIC will be due.

If you’re an employer

If you reimburse employees:

– Paying at or below AMAP rates means no reporting to HMRC.

 

– Paying above AMAP means you must:

 

• • report the excess on a P11D, and

     

  • treat the extra as taxable pay through PAYE

 Mileage reimbursements reduce taxable profit for corporation tax purposes because they are a normal business expense.

VAT on mileage claims

Businesses can reclaim VAT on the fuel portion of mileage claims as long as they:

• are VAT registered, and

   

• keep valid fuel receipts dated before the journey

   

The fuel portion depends on the engine size and is published quarterly as Advisory Fuel Rates (AFR).

Example:
Petrol, engine up to 1400cc
AFR = 12p
200-mile journey
Fuel element = £24.00 (200 × 12p)

To extract the VAT:

£24.00 × 1/6 = £4.00 VAT

Only the fuel element attracts VAT. The remainder of the mileage paid is a non-fuel portion and has no VAT to reclaim.

You cannot reclaim VAT if you are:

• not VAT registered, or

   

using the flat rate scheme (unless using the fuel scale charge — specialist area)

Quick checklist for business owners

Before you submit another mileage claim, ask yourself:

– Do we have a clear process for mileage logs?

 

– Does the team understand what counts as a temporary workplace?

 

– Are we reclaiming VAT correctly on mileage?

 

– Do our expense policies make this clear?

 

Tidy mileage procedures are one of the easiest ways to stay compliant, save tax, and avoid avoidable friction with HMRC.

Final thought

Mileage isn’t glamorous, but it’s a place where lots of small amounts quietly add up. Get it right, embed good documentation, and you’re protecting both cash and compliance.

If you’d like us to review your current expense policy or set up a mileage process that works with Dext, just get in touch. We’re happy to help.