Mileage payments and simplified expenses

Employers may meet the cost of fuel used for a business journey in a car or van by paying a mileage allowance. The extent to which mileage payments can be made free of tax depends on the amount paid and whether the vehicle is the employee’s own or a company car.

Employees using their own vehicle for work

Where an employee uses their own vehicle for business travel, the Approved Mileage Allowance Payments (AMAP) scheme governs both the amount that can be paid tax free and also the amount of relief that the employee can claim where they do not receive adequate reimbursement from their employer.

Approved rates are set for cars and vans, motorcycles and bicycles. For cars and vans, a higher rate applies to the first 10,000 business miles in the year. This rate has recently been increased from 45p per mile to 55p per mile, with the increase applying retrospectively from the start of the 2026/27 tax year.

The approved rates for 2026/27 are shown in the table below:

The rates do not only cover fuel, they also include insurance, depreciation, wear and tear etc.

Approved amount

The approved amount is the maximum amount that can be paid tax free for the tax year. The approved amount is found by multiplying the business mileage for the year by the approved rate for the type of vehicle in question. As the approved amount is worked out on a tax year basis, it does not matter if the rate for some journeys is more than the approved rate. What is important is that the total amount paid in the tax year is not more than the approved amount.

Company car drivers

Employers can also make tax free payments to employees who meet the cost of fuel for business journeys in a company car. However, different rates apply.

HMRC set fuel only rates, known as the advisory fuel rates, which can be used to make tax free mileage payments to employees meeting the cost of fuel for business travel in their company car.

The rates are updated quarterly.

The rates applying from 1^st June 2026 are as shown below:

As long as the amounts paid by the employer do not exceed the prevailing advisory rate, the amounts can be paid tax free. If the employer pays mileage rates in excess of the advisory rates, unless they can show that the actual duel cost is higher, the excess over the advisory rate is taxable and liable to Class 1 National Insurance the excess is treated as earnings for both PAYE and national insurance purposes.

The rates are not compulsory and where the employees car is particularly fuel efficient, the employer may opt to pay a rate which is lower than the advisory rate. However, unlike the approved amount, the advisory fuel rate does not necessarily cap the amount that can be paid tax free. HMRC will allow the employer to pay a rate higher than the advisory rate free of tax if they are able to demonstrate that the actual fuel cost for the vehicle in question is higher than the advisory rate for a car of that fuel type and that engine size. If the employer is unable to demonstrate that this is the case and pays rates which are higher than the advisory rates, the excess over the advisory rate is liable to tax and national insurance.

The amount which can be reimburses tax free in respect of business travel in an electric company car depends on whether the employee charged the car using a home charger or a public charger. A higher rate can be paid tax free where a public charger is used. For journeys where a car is charged at both a residential location and at a public charger, the mileage should be apportioned on a just and fair basis to reflect the mileage undertaken from each charge. This necessitates additional record keeping not only must the employee keep a record of the mileage for each business trip but also log when and where they charged the car and the milage at each charge.

Where the employer initially meets the cost of all fuel, the rates can be used to calculate the amount that the employee needs to reimburse the employer for private journeys to prevent a fuel benefit charge from arising.

In the event that the employer does not meet the cost of business journeys in a company car, the employee can also claim tax relief for the cost. However, the advisory rates cannot be used to calculate the amount of relief to which the employee is entitled. Instead, the deduction is based on the actual fuel costs incurred by the employee. This necessitates record keeping by the employee.

Simplified expenses

The simplified expenses system can be used by sole traders and by partnerships with no corporate partners to calculate certain deductible amounts using rates set by HMRC. The system can only be used for business vehicle expenses and for the costs of working from home, and to calculate the private use adjustment where the proprietor or partner lives in the business premises.

As far as vehicles are concerned, simplified expenses can be used for cars (other than those designed for commercial use, such as black cabs, hackney carriages and dual control cars used by driving instructors), goods vehicles, such as vans and motorcycles. The rates for these vehicles mirror the approved rates. Consequently, self-employed clients using simplified expenses for vehicles also benefit from the increase to 55p per mile for cars and goods vehicles for the first 10,000 business miles in the year.

It should be remembered that simplified expenses cannot be used where capital allowances have been claimed in respect of the vehicle.