How it works when you're employed
If your employer reimburses your business mileage at or below the HMRC rates, you receive this money tax-free. It doesn’t count as income and doesn’t need to be reported on your tax return. If your company provides a car allowance or a company car, this affects your eligibility for mileage claims, as different rules apply and you may not be able to claim mileage allowance if you use a company car.
When your employer pays less than the approved rates, you can claim tax relief on the difference. For example, if you get 25p per mile but are entitled to 45p, you can claim relief on the 20p gap. This process of making a mileage claim through HMRC is sometimes referred to as an HMRC mileage claim.
If your employer pays more than the approved rates, the excess is taxed as income. You’ll need to pay income tax on this additional amount through your PAYE code.
Remember that normal commuting to your regular workplace doesn’t count as business travel. You are unable to claim mileage allowance for regular commuting or personal journeys. Only journeys to temporary workplaces or between work sites qualify for mileage claims. According to HMRC rules, a temporary workplace is a location where you work for a limited period or for a specific task, and not your permanent place of employment.
Completing your tax returns accurately and including all relevant mileage claims is essential to ensure compliance and to receive the correct relief.
Rules for the self-employed
Self-employed people can use the simplified mileage allowance instead of calculating actual vehicle expenses. This can save considerable time on paperwork and calculations.
You must choose this method from the first tax year you use that vehicle for business. Once selected, you must stick with it for that particular vehicle.
You can only claim for the business proportion of your journeys, which means you must calculate the percentage of your total mileage that is for business purposes. Any personal use must be excluded from your calculations.
The rates are the same as for employees: 45p per mile for the first 10,000 miles in cars and vans, then 25p after that. These are deducted as allowable business expenses.
If you choose to claim actual vehicle expenses instead, remember that fuel costs are a significant part of total vehicle expenses for self-employed individuals. If your vehicle has high road tax or other significant expenses, claiming actual costs may be more beneficial than using the simplified method.
