The phrase company mileage allowance is used for two arrangements that HMRC taxes in opposite ways. One is a per-mile reimbursement for business miles, tax free up to the approved amount for a private car or the advisory fuel rate for a company car. The other is a fixed monthly cash sum paid whether or not any miles are driven, which is a car allowance and is taxed as pay in full. Employers that call the second by the first name end up with an unreported benefit; employees that expect the first and receive the second are surprised by their payslip. This page keeps the two apart and says what each costs the driver and the employer.
A per-mile reimbursement
Paid only for business miles actually driven, at a rate the employer sets. For an employee's own car it is tax free up to the approved amount, 55p a mile to 10,000 business miles in the tax year and 25p after; for a company car it is tax free up to the advisory fuel rate for the fuel and engine size. It needs a log and nothing else. This is what HMRC's rules mean by mileage allowance payments.
A fixed cash sum
Paid monthly regardless of miles, it is a car allowance: salary by another name, taxed at the driver's marginal rate with employee National Insurance, and costing the employer Class 1 National Insurance on top. It does not use up or replace the approved mileage amount; a driver receiving a car allowance still claims business miles in their own car at the approved rate, and still has relief on any shortfall.
Mixing the two
Some employers pay a fixed sum plus a low per-mile rate. The fixed sum is pay; the per-mile element is judged against the approved amount on its own, so a low rate leaves the driver a relief claim on the shortfall even though the fixed sum was generous. The two are never netted against each other in the tax calculation.
Which to offer
A per-mile reimbursement at the approved rate is simplest and tax neutral for a driver whose mileage is genuinely business. A cash allowance suits an employer that wants a fixed cost and a driver who values the certainty, and the allowance worksheet on this site sets it against a company car for the driver and the employer.
Questions people ask about company mileage allowance
Is a company mileage allowance taxable?
A per-mile reimbursement is not, up to the approved amount or the advisory rate. A fixed monthly sum is taxable as pay whatever it is called.
Can I get both a car allowance and mileage?
Yes, and it is common: the allowance is taxed as pay, and business miles in your own car are reimbursed tax free up to the approved amount on top.
Does the allowance count towards the 10,000 mile threshold?
No. The threshold counts business miles, not money; a cash allowance has no effect on it.