• Mr Paul Clifton

HMRC mileage rates not enough to cover actual fuel costs

Updated: May 10


Employees can use the approved mileage allowance payment (AMAP) rates, of 45p / 25p, where they use their own vehicle for business purposes. The fixed mileage rates are designed to cover the costs of fuel and wear and tear of the employee's own car when used for business trips.

The 25p rate applies when over 10,000 business miles have been driven in the tax year. The 45p / 25p rates apply to each employee for each tax year and not per employee's car per tax year. In other words, the employer does not need to monitor which car an employee is using, only their business mileage each tax year.

If an employee is provided with a company car they cannot use these rates. However, instead a mileage claim can be made for business travel to only cover the cost of fuel where this is paid for by the employee. Amounts paid under the allowances are tax free in the hands of employees.

HMRC states that a mileage log should be kept and should show the:

  • date and purpose of the business trip

  • distance travelled

  • start and end address of each trip (including postcodes)

The AMAP rates can only be used for:

  • travel between a permanent workplace and a temporary work (e.g. visiting customer)

  • travelling between temporary workplaces

  • travelling between two workplaces in the same employment

  • travelling from home to another [temporary] workplace if the employee's home is their [permanent] workplace due to the requirements of the employment

Therefore, the AMAP rates cannot be used to claim mileage for 'ordinary commuting' which means your ordinary private mileage getting to and from work each day. Travelling to and from work is not mileage incurred 'in the performance of' the employment', but to 'put the employee in a position to perform their employment.'

For National Insurance payment purposes, the 45p per mile rate is used for all excess business miles payments , not just the first 10,000 miles. For Income Tax purposes, amounts paid to employees exceeding the appropriate 45p / 25p rates are taxed at the employee's marginal rates of Income Tax.

Class 1A (employer's) National Insurance is paid through Form P11D. Any amount paid over the approved rates is added to the employee’s gross pay, for calculation purposes only, and they therefore pay Income Tax and employee's National Insurance as required.

Can an employee claim more, but Income Tax and National insurance free?

The 45p and 25p per mile rates, set by H M Revenue & Customs, are not always sufficient to cover the cost of claiming for using your own personal vehicle for business travel. This is particularly the case after you have already incurred more than 10,000 business miles in the tax year and you are restricted to 25 pence per mile.

The H M Revenue & Customs guidance states that if you pay rates that are higher than the 45p / 25p authorised mileage scheme rates, and cannot show that your cost fuel cost per mile is higher than the 45p / 25p fixed rates then the excess paid over the fixed rates will be treated as taxable earnings.

Anything paid above the approved rates is tax deductible for the employer but is taxable on the employee and must be reported on Form P11D. Amounts paid at or below the AMAP rates do not have to be reported on Form P11D.

If an employer pays less than the approved rates, an employee can claim Income Tax relief from HMRC for the shortfall. This is done either through their annual Self-Assessment Tax Return or by completing Form P87. The amount being claimed can also affect which route an employee must use. A Tax Return must be completed where all employment expenses being claimed are more than £2,500 pa. Form P87 is ideal for small amounts of expenses or where an employee is not currently preparing a formal Tax Return.

The 45p / 25p per mile rates offer a method to save businesses a lot of administration and record-keeping in demonstrating their actual cost of fuel for each business journey.

However, H M Revenue & Customs say that if the cost of business travel is higher than the fixed rates, you can use your own rates to reflect your situation. However, if wish to pay a higher you must be prepared to keep full and detailed records, with calculations, to support that higher rate as being no more than necessary to fully reimburse the actual costs of the fuel used.

Therefore, you either pay at the fixed rates, of 45p / 25p per mile, or put in the work to calculate, and keep up to date, the real cost per journey and maintain suitable records of how these were calculated.

The 45p / 25p per mile rates are designed to cover the cost of fuel, general repairs, service and maintenance, depreciation, insurance etc on your private vehicle. However, if you wish to claim the actual fuel costs at a higher amount than the 45p / 25p per mile rates then you cannot make any additional claim to cover the general running costs of running the vehicle i.e. the non-fuel related costs.

My personal thought would be that if you can demonstrate additional actual costs for the non-fuel related costs of running the vehicle for business mileage then you could make a valid tax-free claim.

What you certainly cannot do is claim a proportion of your fixed annual insurance or general running costs based, say, on the proportion of business to total mileage, and expect this to not be taxable on you personally. That is an arbitrary apportionment and does not reflect the actual additional costs of using the vehicle for business.

There may be an argument to say that the tyres on the vehicle, for example, with a considerable amount of motorway driving or consistent off-road driving that you can fairly accurately determine the cost per mile arising through general wear and tear on tyres. Therefore, if you know your vehicle tyres would typically last 30,000 miles and you do say 25,000 business miles each year then there may be an argument that you can accurately determine the cost of the tyres. However, if you are only doing say 500 business miles, I think it would be much more difficult to demonstrate the actual cost of the tyres consumed purely on business travel.

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