ARE you paying your employees the right mileage rate? Every spring HMRC updates its rate before the tax year begins and has just published the mileage rate for 2023.

Actually, it’s the same as last year and has not changed since 2011 and remains at 45p for the first 10,000 miles for business purposes and 25p for each business mile after the threshold of 10,000 miles. Full details are on the HMRC website.

Besides the general rules on mileage allowance, you should be aware of the National Insurance (NI) scheme that may affect mileage allowance payments from your employer.

To get technical for a moment, the name for the payment rate – which is tax-free by the way – is called the Approved Mileage Allowance Payment (which you might see shortened to AMAP). It is there to cover not only the fuel costs, but the cost of business insurance, depreciation and wear and tear while your employee is using their private car on business.

It should be noted that it is a personal allowance and it is cumulative – so the clock does not reset to zero if you change your car halfway through a tax year.

How do you calculate the business mileage rate?

For example, if your staffer travelled 14,000 miles a year in their own car on business for you, the calculation would look like this:

• 10,000 miles @ 45p per mile = £4500.00
• 4000 miles @ 25p per mile = £ 1000.00
• Total = £5,500.00

The same business mileage allowance can also be paid to staff who drive their own vans on business for you.

So, do you have to pay the full rate? No, you don’t. Your staff might not like it but you can pay less.

If you do pay less, you should make it clear to your staff that they can claim the difference between what you pay – in this case 25p – and the Approved Mileage Allowance Payment (AMAP), which is 45p for the first 10,000 miles. This tax relief on the pence per mile shortfall is called Mileage Allowance Relief.

You can also help staff reclaim any shortfall in mileage payments through HMRC’s Mileage Allowance Relief Optional Reporting Scheme (or MARORS). This is voluntary and although angled more for use by local authorities and health authorities, it might be useful as part of your negotiations with staff.

Tax implications

Are there any tax implications for business mileage payments? Both from the perspective of your staff – and you as an employer – there is no tax payable, as long as the approved amount is not exceeded.

If, of course, you feel generous and go beyond 45ppm the employee’s excess will be liable to benefit in kind car tax and the excess amount will also be liable to National Insurance payable by you, the employer. Payments above the appropriate AMAP rate must be noted on form P11D.

The AMAP business mileage rates can only be paid for business car journeys undertaken in a private vehicle. These include journeys made between premises or journeys made to a temporary workplace. They do not include commuting.

AMAPs can be paid for staff:

• using their own car;
• using their own van;
• if they take a passenger, add an additional 5p per mile;
• for motorcycles it is 24p per mile; and
• for cycles 20p per mile.

What about EVs?

There is a separate and much lower flat rate for fully electric vehicles. From 1 March 2023, the advisory electric rate for fully electric cars is 9 pence per mile. The Advisory Electricity Rate (AER) is calculated similarly to an AFR, based on energy-efficiency data and the average cost of a unit of electricity at home.

There are specific rates for vehicles run on either petrol, diesel and liquefied petroleum gas (LPG), each of which also has different rates depending on the vehicles’ engine size. These rates are calculated based on an average fuel efficiency figure for vehicles sold to fleets, and the latest forecourt prices across the UK, rounded up or down to the nearest whole penny.

AFR and AER rates can be used when an employer reimburses an employee for business travel in their company cars. They can also be used when employees are asked to repay the cost of fuel used for private travel. However, they must not be used in any other circumstances.