Find out how to get reimbursed for the cost of driving your car for business with our guide to mileage allowances, mileage rates, and more.
Mileage allowance is an important topic for business travellers to understand, and when it comes to minimising business expenses, it’s definitely worth a closer look.
Whether you’re a small business owner, corporate employee or self-employed entrepreneur, you already know how important it is to keep your eye on the bottom line, especially when it comes to business travel, which requires a significant outlay in expenditure.
When we talk about travel expenses, we’re not just talking about the cost of flights and accommodation. It also includes the mileage you cover driving on business journeys. However, there are schemes to mitigate these costs. They’re called mileage allowance relief, and it’s a way for taxpayers to claim back the money spent using personal vehicles for work purposes.
The system can be a little Byzantine, with each country having its own mileage rates. While other types of expenses only require a receipt, mileage allowances require distance tracking. And to further complicate the issue, both employers and national revenue agencies, such as the IRS in the United States or the HMRC in the UK, can make reimbursement payments. So, how does business mileage reimbursement work? Read on for more details.
Current tax laws are designed with the idea that entrepreneurs shouldn’t be taxed on the costs of running a business. The purpose of a mileage allowance is to cover the cost of fuel, road tax, car insurance, and everyday wear and tear.
If you are an employee or small business owner driving your own car for company purposes, you’ll be able to claim back some of these mileage charges as a tax deduction. A mileage allowance refers to the maximum amount that you can claim.
If your business’s employees use their own vehicles to make business journeys, you can issue them mileage allowance payments, or MAPs. If these don’t cover the full approved mileage rates, any remaining allowance can be claimed by the employee on their individual tax return.
Small business owners and freelancers can also claim mileage expenses on their Self Assessment at the end of each tax year.
Now, let’s take a look at the process of mileage claims in the UK, as outlined by HM Revenue and Customs (HMRC).
Yes, as of 2024, HMRC allows you to claim 45p as a tax-free business mileage allowance, provided you’re using your own vehicle for business journeys.
The standard 45p per mile rate applies to cars and vans. Additional HMRC mileage rates include:
HMRC is very clear about what does – and doesn’t – qualify as a business journey.
Journeys qualifying for tax relief:
Journeys that do not qualify for tax relief:
The 45p mileage claim rate allowance applies to the first 10,000 miles driven each year. After this allowance, you can claim 25p per mile for mileage charges accruing from additional business journeys.
When employees carpool for the same business, this increases the mileage allowance at a rate of 5p per mile, per additional passenger.
Example: If three employees travel together, the HMRC mileage allowance would be 55p per mile. This includes 45p for the driver plus 2 x 5p per mile for each passenger.
Many countries operate business mileage reimbursement schemes, so you can track and calculate your mileage allowance for business trips overseas. Here’s how it all works in the United States and mainland Europe:
In the United States, the mileage allowance will depend on the type and purpose of business journey. For example, current IRS business mileage rates are:
The US offers an alternative to corporate mileage rates called Fixed and Variable Rate Reimbursement. This gives eligible employees a basic rate to cover fixed costs of car ownership and maintenance, supplemented with variable per-mile payments. These are adjusted by the employee’s specifical location, as costs can vary widely for regional teams spread out between states. Of course, employees can only claim one or the other, not both forms of business mileage reimbursement.
While the US and UK calculate mileage rates per mile, most countries in Europe calculate them per kilometre driven. Here are a few typical recent rates, by country:
And in Sweden, the mileage rates are €2.25 per every 10 km driven. All these mileage rates apply when other related travel costs aren’t claimed. For example, as with the UK, you can’t claim additional mileage expenses for wear and tear when driving to a conference.
Some European countries, including France and Ireland, charge different rates depending on the type of vehicle driven. This is something to keep in mind when reserving a company rental car.
The mileage allowance is a tax deduction meant to cover all running costs when personal cars are used for business journeys. That means if an employee is claiming the HMRC mileage allowance, they wouldn’t be able to file separate claims for costs like fuel and MOTs. These are already covered with the business mileage rates.
What if you use a company car rather than a personal vehicle? When driving company cars, you can claim on fuel and electricity costs as business expenses. It’s important to save all receipts for these kind of business mileage expenses. A good business expense tracking system can help you keep accurate records for company car use, which is separate to the standard mileage allowance.
Calculating your total HMRC mileage allowance is straightforward if you’re an employee.
Here’s an example:
An employee travels 12,000 miles in the most recent tax year. This breaks down by tax rate into:
The total mileage allowance would be £5,000.
Then, imagine the employee has already issued reimbursement payments at a rate of 10p per mile, for a total of £1,200.
Businesses will receive mileage reimbursement as a deduction from taxable income. This should be claimed and filed through your business tax return.
If employees don’t receive reimbursement directly from their employers as a milage allowance payment, the claim should be made on your Self-Assessment or personal tax return.
You can potentially claim the cost of VAT on mileage if employees are using a company car. Use HMRC’s Advisory Fuel Rates (AFR) as a guide to reimbursing employees for business travel in these circumstances. While you can’t claim VAT on top of the regular mileage allowance, you can claim it if you’ve used fuel that’s subject to AFR.
It’s worth verifying these figures with your accountant. You should also hold onto all VAT receipts if you go this route, as HMRC can request to see documentation.
When making a mileage claim, HRMC requires records of each trip and the mileage covered. At minimum, you should record:
If you don’t really drive that often for work and only have a few entries, you might be able to enter these trips manually in a logbook or spreadsheet.
Over time and with repeat journeys, this process becomes tedious, and you’ll want to use an automated mileage tracker app instead. While this seems complicated, using apps like Everlance and MileIQ will take care of these records for you. Just make sure the app issues HMRC compliant mileage reports.
Tracking business expenses like mileage rates gets complicated, especially if your business involves lots of travel in different countries.
To begin with, you’ll need a good online accounting system to track all business expenses. Look for platforms that allow each employee to log in individually. That way, they’ll be able to submit their mileage and other travel expenses with all supporting documentation.
It’s also a good idea to implement corporate travel systems that can manage employee travel, both on daily commutes and work trips. With Booking.com for Business, you can reserve company cars while getting the best rates in every location.
One-stop-shop software solutions like this let you streamline and manage all aspects of business travel, including company and rental cars. Cut down on paperwork while getting the best travel rates.
Business travel can be expensive. Saving money on business travel requires effort from all employees...
Having the right business travel payment solution is key to managing your expenses and making sure b...
Optimise your business trips, streamline your processes and make your organisation more efficient wi...
