Navigating UK mileage allowances can be complex for businesses, but understanding the latest HMRC rules can save your company thousands in tax relief. This comprehensive guide covers everything you need to know about mileage allowances, rates, and claiming procedures for 2025.

Quick Summary: Key Points You Need to Know

• 2025 HMRC mileage rates remain unchanged: 45p per mile for first 10,000 miles, then 25p per mile
• Mileage Allowance Payments (MAPs) can be paid tax-free up to approved rates
• Mileage Allowance Relief (MAR) can be claimed if reimbursement is below HMRC rates
• Accurate record-keeping is essential to avoid penalties up to £3,000

Understanding HMRC Mileage Allowances

What Are Mileage Allowance Payments (MAPs)?

Mileage Allowance Payments are what you pay employees for using their personal vehicles for business journeys. These payments cover:

• Fuel costs
• Vehicle wear and tear
• Insurance
• Road tax
• Maintenance costs

What is Mileage Allowance Relief (MAR)?

MAR is a tax relief that employees can claim if:

• Their employer doesn’t reimburse them for business mileage
• They receive less than the HMRC-approved rates

2025 HMRC Mileage Rates

The rates for 2025 remain unchanged from previous years:

Standard Vehicles

• Cars and Vans: 45p per mile (first 10,000 miles), then 25p per mile
• Motorcycles: 24p per mile (all miles)
• Bicycles: 20p per mile (all miles)

Additional Allowances

• Passenger payments: 5p per mile per passenger for carrying fellow employees on business journeys

Note: These rates have remained unchanged since 2011, despite rising vehicle costs.

What Qualifies as Business Mileage?

Eligible Journeys Include:

• Travel between your permanent workplace and temporary workplaces
• Client visits and meetings
• Travel from home to another workplace (if home is your permanent workplace)
• Business conferences and training events
• Delivery or collection of business items

Non-Eligible Journeys:

• Ordinary commuting: Travel from home to your regular workplace
• Personal errands during business hours
• Travel for personal reasons

Defining Permanent vs Temporary Workplaces

Permanent Workplace: Where you spend at least 40% of your working time regularly

Temporary Workplace: A location visited for specific tasks or limited periods (less than 24 months)

How to Implement Mileage Allowances in Your Business

For Employers: Setting Up MAPs

1. Choose Your Reimbursement Rate
   • Use HMRC-approved rates to avoid tax complications
   • Payments up to approved rates are tax-free
   • Excess amounts are subject to tax and National Insurance
2. Establish Clear Policies
   • Define what constitutes business travel
   • Set approval processes for mileage claims
   • Implement regular payment schedules (typically monthly)
3. Record-Keeping Requirements
   • Employee vehicle details
   • Business mileage logs
   • Reimbursement calculations
   • Supporting documentation

Example Calculation for Employers

Scenario: Employee drives 15,000 business miles in their car per year

Calculation:

• First 10,000 miles: 10,000 × £0.45 = £4,500
• Remaining 5,000 miles: 5,000 × £0.25 = £1,250
• Total annual allowance: £5,750

How Employees Can Claim Mileage Allowance Relief

When Can You Claim MAR?

1. No employer reimbursement: Claim full amount at HMRC rates
2. Partial reimbursement: Claim the difference between what you received and HMRC rates
3. Below-rate reimbursement: Claim top-up to reach HMRC rates

Claiming Process

For Claims Under £2,500

Use HMRC Form P87 for simple claims

For Claims Over £2,500

Include in your Self-Assessment tax return

For Self-Employed

Deduct mileage as a business expense in your Self-Assessment

Example MAR Calculation

Scenario: Employee drives 8,000 business miles, employer reimburses at 30p per mile

HMRC Allowance: 8,000 × £0.45 = £3,600 Employer Payment: 8,000 × £0.30 = £2,400 MAR Claim: £3,600 – £2,400 = £1,200

Essential Record-Keeping Requirements

HMRC-Compliant Mileage Log Must Include:

• Date of each journey
• Start and end locations
• Business purpose of the trip
• Total miles travelled
• Employee details and vehicle registration

Record Retention

• Keep records for at least 5 years
• Maintain both digital and physical backups
• Ensure logs are available for HMRC audits

Common Record-Keeping Mistakes to Avoid

1. Estimating mileage instead of recording actual miles
2. Missing business purpose descriptions
3. Inadequate journey details
4. Failure to separate business and personal mileage

Advanced Scenarios and Special Cases

Company Directors

• Directors can claim mileage allowances under the same rules as employees
• Must maintain accurate logs of business travel
• Cannot double-claim (e.g., mileage allowance AND fuel expenses for the same journey)

Multiple Vehicles

• Mileage from all vehicles is calculated together
• Cannot exceed total HMRC limits across all vehicles
• Must maintain separate logs for each vehicle

Carrying Passengers

• Additional 5p per mile per passenger for fellow employees
• Both journeys must be for business purposes

Cannot claim if journey is only for passenger’s benefit