What Is Mileage Allowance?

Mileage allowance is financial compensation for the costs incurred when using a vehicle for business purposes. This typically includes client visits, travel to temporary workplaces, or other work-related journeys.

Under current HMRC Approved Mileage Allowance Payments (AMAP) rates:

If you use your own private car for business:

• 45p per mile for the first 10,000 business miles per tax year
• 25p per mile for any additional miles above 10,000

These amounts can be paid tax-free by your employer.

If you drive a company car:

You cannot claim AMAP rates. Instead:

• Employers may reimburse actual business fuel costs.
• Advisory Fuel Rates (AFR) set by HMRC apply, and these vary depending on:
• • Fuel type (petrol, diesel, hybrid, electric)
  • Engine size
  • Electricity rate (for EVs)

If reimbursement exceeds HMRC’s approved rates, the excess is treated as taxable income.

Important

Accurate mileage records are essential to:

• Prove business use
• Avoid additional tax liabilities
• Ensure compliance in the event of an HMRC enquiry

A properly maintained mileage log should include:

• Date of travel
• Start and end locations
• Purpose of the journey
• Miles travelled
• Vehicle and driver details

Clear documentation protects both the employee and the employer.

Minimum Requirements for an HMRC-Compliant Mileage Log

An approved mileage log should include:

• Date of each journey
• Start and end addresses
• Purpose of the trip (e.g. client meeting, delivery, site visit)
• Odometer reading at start and end of the journey
• Total miles driven
• Driver details
• If the vehicle is also used privately: a clear distinction between business and private mileage

Proper documentation is essential to:

• Qualify for tax-free mileage reimbursement
• Support Benefit-in-Kind calculations (where applicable)
• Reduce risk during an HMRC audit

A digital mileage log simplifies compliance by automatically recording and categorising journeys, ensuring records meet HMRC standards.

Why Is a Mileage Log So Important?

HMRC carries out regular compliance checks where mileage records are a key supporting document. Inadequate or incomplete documentation can lead to several consequences:

• The taxable Benefit-in-Kind (BIK) value of a company vehicle may increase
• Tax-free mileage reimbursement may be reclassified as taxable income
• Penalties and interest charges may be imposed
• Mileage deductions may be denied for sole traders or limited companies

In addition, UK record-keeping rules generally require supporting documentation to be retained for at least 6 years.

Special Rules for Company Cars (Benefit-in-Kind Vehicles)

If you are provided with a company car that is also available for private use, specific tax rules apply.

For UK tax purposes:

• If the vehicle is available for private use, a Benefit-in-Kind (BIK) charge normally applies.
• To avoid or reduce BIK exposure, you must clearly demonstrate that private use is restricted or insignificant.

Where private use is claimed to be limited, detailed mileage records are essential to demonstrate:

• The proportion of business vs private mileage
• The purpose of each journey
• Accurate odometer readings

Additionally, records impact:

• Fuel benefit charges (if the employer pays for private fuel)
• Reimbursement calculations
• Employer reporting via P11D or payroll

A properly maintained digital mileage log provides the audit trail needed to meet HMRC requirements and significantly reduces tax risk for both employer and employee.