A company mileage rate is the rate an employer decides to pay its drivers for business miles, and the decision is bounded on both sides by HMRC: the approved mileage rate for employees' own cars and the advisory fuel rates for company cars are the ceilings on what can be paid free of tax. Within them the employer is free to choose, and the choice has consequences for payroll, for the driver's tax position and for what has to be reported. This page is written for the fleet or finance manager setting or reviewing the rate: the options for each kind of car, the reporting each creates, and how to write the policy so the claim form applies the right rate automatically.
For employees' own cars
The neutral choice is the approved rate, 55p a mile to 10,000 business miles in the tax year and 25p after, because it is tax free for the driver and needs no reporting. A lower flat rate saves the employer money and leaves the driver a relief claim on the shortfall. A higher flat rate creates taxable pay for the excess, which goes through payroll with National Insurance, and is rarely worth the administration.
For company cars
Fuel only, at the advisory fuel rate for the fuel and engine size, or the electricity rate for an electric company car. Paying the advisory rate needs no evidence beyond the miles; paying more is taxable unless the true cost per mile is shown; paying less is permitted. The rates change quarterly, and a policy that names the rate rather than pointing at HMRC's table is out of date within the year.
What each choice creates in payroll
Approved or advisory rates: nothing to report, a log to keep. Payments above them: taxable earnings through payroll for the excess, with National Insurance, and the mileage records kept to show the tax-free part. Payments below the approved rate to private-car drivers: nothing for the employer, and a year-end statement of miles and payments is a courtesy that helps the driver claim.
Writing the policy
State the rate for each vehicle class by reference to HMRC's published rates and the date they apply, require the log fields on the claim form, state that commuting is excluded, and say who checks the running total against the 10,000 mile threshold. A policy written that way applies the right rate without anyone remembering the numbers, and the worksheets on this site work the figures for any claim against it.
Questions people ask about company mileage rate
Can we pay one rate for every car?
You can, but a single rate that suits private cars overpays company car drivers for fuel and creates taxable pay, and one that suits company cars leaves private-car drivers with relief claims. Two rates, one per class, is the usual policy.
Do we have to pay mileage at all?
No. There is no obligation to reimburse business mileage, though most employment contracts do; where you pay nothing, a private-car driver claims the whole approved amount as relief.
Does Carbikly hold the policy rate?
Carbikly Pro keeps each claim against the car and the driver at the rate you paid, beside the advisory or approved rate that applied, so the excess or the shortfall is visible per claim.