Understanding Business Travel Mileage for Employees Using Their Own Vehicles

When employees use their personal vehicles for business-related journeys, businesses can compensate them through Mileage Allowance Payments (MAPs). This compensation is subject to specific rules for taxation and National Insurance contributions, as outlined by HM Revenue and Customs (HMRC). This guide provides an overview of these rules, focusing on the tax implications, the calculation of the approved amount, and the reporting requirements.

Rules for Tax on MAPs 

MAPs are payments made to employees for using their own vehicles for business purposes. Employers can pay a certain amount of MAPs each year without needing to report them to HMRC, known as the ‘approved amount’. The approved amount also applies to employees using their own cars for volunteer work related to COVID-19, though these must be reported and taxed through a PAYE Settlement Agreement as a COVID-19 related benefit.

 Calculating the Approved Amount 

To determine the approved amount, multiply the number of business travel miles by the HMRC’s specified rate per mile for the type of vehicle used. The current rates per business mile are as follows:

Cars and vans: 45p for the first 10,000 miles and 25p for each subsequent mile.

Motorcycles: 24p for all business miles.

Bikes: 20p for all business miles.

For example, if an employee travels 12,000 business miles in their car within a year, the approved amount would be £5,000, calculated as 10,000 miles at 45p per mile, plus 2,000 miles at 25p per mile.

Reporting and Paying Tax on MAPs

Exceeding the Approved Amount: If the payments made exceed the approved amount, the excess must be reported on form P11D. This excess will be added to the employee’s earnings, and tax must be deducted and paid in the usual way.

Below the Approved Amount: If the payments are less than the approved amount, there’s no need to report to HMRC, and no tax is due on the payments. However, employees can claim Mileage Allowance Relief (MAR) on the unused portion of the approved amount. Employers can optionally report any unused balances to HMRC under the Mileage Allowance Relief Optional Reporting Scheme (MARORS).

 Passenger Payments 

In addition to MAPs, employers can compensate employees for carrying passengers on business journeys. This guide does not cover the specifics of passenger payments but be aware that they too have tax implications.

Beavis Morgan is committed to helping businesses navigate the complexities of tax regulations related to employee travel. If you have any questions or need assistance with tax planning, reporting, or compliance, please contact your usual Beavis Morgan Partner or email info@beavismorgan.com. Our team is here to provide the expertise and support you need to manage your business finances effectively and compliantly.