Expenses and benefits: business travel mileage for employees' own vehicles
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1. Overview
As an employer, you have certain tax, National Insurance and reporting obligations if you cover the costs of your employees using their own vehicles for business travel.
There are 2 separate schemes used to deal with these mileage expenses - one for tax and one for National Insurance.
2. Rules for tax
If you make payments to employees above a certain amount, you鈥檒l have to report them to HM Revenue and Customs (HMRC) and deduct and pay tax.
Mileage Allowance Payments
Mileage Allowance Payments (MAPs) are what you pay your employee for using their own vehicle for business journeys.
You鈥檙e allowed to pay your employee a certain amount of MAPs each year without having to report them to HMRC. This is called an 鈥榓pproved amount鈥�.
You can also pay the approved amount of MAPs to your employee if they use their own car to do volunteer work related to coronavirus (COVID-19). You must report and pay tax through a PAYE Settlement Agreement as a COVID-19 related benefit.
Work out the value
To calculate the 鈥榓pproved amount鈥�, multiply your employee鈥檚 business travel miles for the year by the rate per mile for their vehicle.
Use HMRC鈥檚 MAPs working sheet if you need help.
Tax: rates per business mile
| First 10,000 miles | Above 10,000 miles | |
|---|---|---|
| Cars and vans | 45p (40p before 2011 to 2012) | 25p |
| Motorcycles | 24p | 24p |
| Bikes | 20p | 20p |
Example
Your employee travels 12,000 business miles in their car - the approved amount for the year would be 拢5,000 (10,000 x 45p plus 2,000 x 25p).
It does not matter if your employee uses more than one vehicle in a year - it鈥檚 all calculated together.
What to report and pay
Anything above the 鈥榓pproved amount鈥�
You must:
- report on form P11D
- add anything above the 鈥榓pproved amount鈥� to the employee鈥檚 pay, and deduct and pay tax as normal
Anything below the 鈥榓pproved amount鈥�
You will not have to report to HMRC or pay tax, but:
- your employee will be able to get tax relief (called Mileage Allowance Relief, or MAR) on the unused balance of the approved amount
- you can make separate optional reports to HMRC of any such unused balances under a scheme called the Mileage Allowance Relief Optional Reporting Scheme (MARORS) - contact HMRC to join the scheme
3. Rules for National Insurance
You might have to deduct and pay National Insurance on payments relating to relevant motoring expenditure (RME), which includes:
- Mileage Allowance Payments (MAPs)
- payments that would be MAPs, but are paid to a person other than your employee, for your employee鈥檚 benefit
- any other cash payments you make to your employee towards the use of their vehicle
A certain amount of RME will be exempt from reporting to HM Revenue and Customs (HMRC) or paying National Insurance on. This is called the 鈥榪ualifying amount鈥�.
Work out the value
To calculate out the 鈥榪ualifying amount鈥�, multiply your employee鈥檚 in the earning period by the rate per mile, shown in the table below.
National Insurance: rates per business mile
| Type of vehicle | Every business mile |
|---|---|
| Cars and vans | 45p |
| Motorcycles | 24p |
| Bikes | 20p |
Example
Your employee drives 1000 miles in their van, and you make a payment of RME to cover this. The qualifying amount for the earnings period would be 拢450 (1,000 x 45p).
What to report and pay
If the RME you provide to your employee in the earnings period exceeds the qualifying amount:
- add the excess to their other earnings for that earnings period when calculating Class 1 National Insurance (but not Pay As You Earn (PAYE) tax) through payroll
If the RME is below the qualifying amount, you have:
- nothing to report
- no National Insurance to pay
There鈥檚 no Mileage Allowance Relief for National Insurance, and you cannot carry forward the difference between RME and the qualifying amount to a later earnings period.
4. Passenger payments
If your employee carries another employee in their own car or van on a business journey, you can pay them passenger payments of up to 5p per mile tax-free.
You will not have to report this to HM Revenue and Customs (HMRC) or deduct and pay National Insurance on them either.
There鈥檚 no equivalent to Mileage Allowance Relief (MAR) for passenger payments.
5. Technical guidance
The following guides contain more detailed information: