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Many SMEs have employees who don’t have a company car policy but use their own private car for business use.

Reimbursement for the business mileage is usually offered by paying an approved mileage rate which s known as Approved Mileage Allowance Payments – often abbreviated to AMAPs.

If you make payments to employees above a certain amount, you’ll 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’re allowed to pay your employee a certain amount of MAPs each year without having to report them to HMRC. This is called an ‘approved amount’

Here’s how it works.

Using AMAPs you may reimburse a staffer who has used their private car on business up to the amount shown below. The employee is not liable for tax on it.

AMAPs can also be used if you run your small business as a limited company but use your private car for business.

The statutory mileage AMAP rates

  • Up to 10,000 miles: 45p per mile; 10,000 miles or more: 25p per mile

These AMAP rates have been current from April 06, 2011.

The statutory mileage AMAP rates are the same for all cars, irrespective of engine size. For smaller cars, they are quite generous. But they may not cover the costs for larger vehicles. On the other hand, for electric vehicles they are fantastically good news.

The government wants to encourage drivers into more fuel-efficient vehicles – and reduce the UK’s carbon dioxide (CO2) emissions.

AMAPs are higher for the first 10,000 miles per year to reflect standing annual costs of motoring, such as Vehicle Excise Duty, business use insurance and depreciation for extra wear and tear.

For every subsequent mile, the mileage rate is lower. This is also to discourage unnecessary business mileage, which is another part of the government’s drive to reduce CO2 emissions.

If you carry passengers on a business trip, they can be claimed for at an additional 5p per mile.

What if you pay less than the AMAP rate?

If an SME decides to pay its staff a lower mileage rate than those in the AMAP table above, the employee can claim tax relief on the difference in their annual return (which is known as Mileage Allowance Relief).

AMAPs can also be paid for using a motorbike on business (24p per mile) and cycling on business (20p per mile). There are no mileage limits on these rates.

AMAPs cannot be claimed for each separate car: they are cumulative for the person claiming them – so you cannot claim 10,000 miles in car 1 at 45ppm and then another 10,000 miles in car 2 at 45ppm.

What if I’m self-employed?

If you are self-employed and use your private car for business trips you can also use the AMAP rates. However, you cannot use AMAP rates AND write off a percentage of running costs and fuel against tax.

The good news is that tax-free Mileage Allowance Payments (MAPs) –– used to reimburse business mileage clocked up by employees using their own vehicles for work –– apply to all cars and vans no matter what fuel they use.

Employees with electric cars can, therefore, claim the same tax-free Approved Mileage Allowance Payments (AMAPs) as petrol or diesel cars. Some things to note:

  • Employees can claim 45p per mile for the first 10,000 business miles in the financial year, and 25p per mile thereafter.
  • Any reimbursement by the employer for business mileage is tax and NIC free provided it’s no higher than the above AMAP rates.
  • Reimbursements over the above AMAP rates are taxable on the employee and must be reported to HMRC.
  • If the employer reimburses at a rate lower than the AMAP rates, the employee can still claim tax relief from HMRC on the difference.

It’s important to note that an employee may receive a taxable benefit in connection with their personal electric car if their employer:

  • Pays for a vehicle charging point to be installed at the employee’s home.
  • Provides a charge card to allow access to commercial or local authority vehicle-charging points.
  • Pays to lease a battery for the employee’s car.

There is no benefit-in-kind charge for employees charging their own cars at a workplace charging station, as HMRC does not consider electricity to be a fuel.

What about the mileage rate for electric cars?

With the Government looking to ban the sale of petrol and diesel vehicles from 2030, your thoughts might be moving towards an electric vehicle – and you can still claim ,mileage.

If you have an electric car as a company car, the HMRC advisory electricity rate is 4p per mile.

The government has reduced the allowance per mile to mirror the cheaper running costs of EVs. Factor this into the overall cost of owning an electric vehicle and how much you can claim to offset these costs for your business.