A small business company director wants to know the correct business mileage rate for paying staff in their own cars

RECENTLY my employees have been moaning about the pence per mile rate I pay them for business mileage undertaken in their own cars. At 25p a mile is this too little? And should I be paying them more?

Chris Wright, editor of Business Car Manager, provides the answer on business mileage rates.

THERE is no right or wrong on this. It very much depends on your relationship with your staff and how much you feel able to reimburse them for the business mileage they perform in their own personal cars.

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.

Up until 05 April 2011, the Approved Mileage Allowance Payment was 40p per mile.

From 06 April 2011 this rate was increased to 45ppm. This rate has not changed since and is still current in the 2022/23 tax year.

This pence per mileage rate can be claimed for business mileage only; and after 10,000 business miles it drops to 25p per mile.

It should also 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 I 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 your staff who drive their own vans on business for you.

Do I have to pay the full rate?

No, you don’t. Your staff might not like it but you can pay less.

But there is no reason for them to miss out on the payment.

If you 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. So in the example you supplied, the difference is 20p per mile. This shortfall can be reclaimed as tax relief on your employees’ tax returns.

This tax relief on the pence per mile shortfall is called Mileage Allowance Relief.

You could also help  your 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.

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.

Is there anything else I should know about business mileage rates?

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.