Using Your Own Car for Work? Understanding Mileage Allowance Payments
When an employee uses their own car, van, motorcycle or bicycle for business journeys, their employer can reimburse them without creating a tax charge — provided the payments remain within HMRC’s approved limits.
This is known as the approved mileage allowance payments, or AMAP, system.
How the approved amount is calculated
The maximum tax-free payment is calculated by multiplying the employee’s qualifying business mileage by the approved rate for the type of vehicle used.
For the 2026/27 tax year, the rates set out in the source article are:
| Vehicle | Business mileage | Approved rate |
|---|---|---|
| Cars and vans | First 10,000 miles | 55p per mile |
| Cars and vans | Miles above 10,000 | 25p per mile |
| Motorcycles | All qualifying miles | 24p per mile |
| Bicycles | All qualifying miles | 20p per mile |
The calculation is made across the whole tax year. It is not calculated separately for each individual journey.
What happens when the employer pays less?
An employer does not have to pay the full approved mileage rate.
However, where the employer pays less than the approved amount, the employee may be able to claim tax relief on the difference.
For example, suppose an employee drives 6,000 business miles in their own car and receives 50p per mile.
They would receive:
6,000 miles × 50p = £3,000
Using an approved rate of 55p, the approved amount would be:
6,000 miles × 55p = £3,300
The employee may therefore be able to claim tax relief on the £300 shortfall.
It is important to remember that this does not usually mean the employee receives £300 back. Tax relief is normally given at the employee’s marginal tax rate.
What happens when the employer pays too much?
The approved amount represents the maximum that can be paid free of income tax.
Where an employer pays more than the approved amount, the excess is normally taxable.
For example, an employee driving 25,000 qualifying miles in their own van would have an approved amount of:
- First 10,000 miles at 55p: £5,500
- Remaining 15,000 miles at 25p: £3,750
Total approved amount: £9,250
If the employer instead paid 55p for all 25,000 miles, the employee would receive £13,750. The £4,500 excess would be taxable.
Income tax and National Insurance are not identical
The National Insurance treatment does not follow the income tax calculation exactly.
According to the source article, the higher mileage rate for cars and vans applies to all qualifying business miles when calculating the National Insurance position. This means a payment can sometimes create an income tax liability without producing a corresponding National Insurance liability.
Good mileage records matter
Both employers and employees should keep suitable evidence of business journeys, including:
- the date of travel;
- the business purpose;
- the starting point and destination;
- the number of business miles travelled; and
- the amount reimbursed.
Ordinary commuting between home and a permanent workplace is not normally business travel.
Need help reviewing your mileage policy?
Mileage payments are straightforward when records are accurate and the correct rates are applied. Problems often arise when businesses use one rate for every mile, reimburse ordinary commuting or fail to distinguish private and business journeys.
At williams lester accountants, we can help you review your expense policy and identify whether employees may be entitled to additional tax relief.