Mileage allowance payments are what an employer pays an employee for business miles driven in the employee's own vehicle, and HMRC's approved mileage allowance payments are the ceiling on how much of that can be paid free of tax and National Insurance. The two phrases are used interchangeably and mean different things: the first is the payment, the second is the limit. This page is written for the employer or payroll manager: how the approved amount is worked for the year, what to do when payments run above it, what the employee can claim when they run below it, and what has to be reported, with the arithmetic on the mileage worksheets on this site.
The approved amount for the year
Business miles in the tax year times the approved rate: 55p a mile for the first 10,000 business miles and 25p a mile for the rest, for cars and vans. The approved amount is per employee per year across all their employments, so an employer is entitled to ask whether the employee claims business miles elsewhere. Motorcycles and bicycles have their own rates on the same page.
Payments above the approved amount
The excess is taxable earnings. It goes through payroll, attracts income tax and Class 1 National Insurance, and is reported like pay. An employer that pays a generous flat rate to a low-mileage driver creates taxable pay from the first mile; one that pays the approved rate all year to a high-mileage driver creates it once the threshold is crossed. The year's running total per driver is the control.
Payments below the approved amount
Nothing to report. The employee has mileage allowance relief on the shortfall, claimed from HMRC through self assessment or a relief claim, and the tax saved is the shortfall at their marginal rate. Employers sometimes provide a year-end statement of business miles and payments to make that claim easy; it is good practice rather than an obligation.
Passengers, and what this is not
A payment for carrying a colleague on business travel can be made at the passenger rate, tax free, when the employer chooses to pay it. None of this applies to a company car: payments to a company car driver for fuel are governed by the advisory fuel rates, and a company car driver has no mileage allowance relief.
Questions people ask about mileage allowance payments
Do mileage allowance payments attract National Insurance?
Not up to the approved amount worked at 55p a mile for all business miles, which is the National Insurance figure; above that the excess attracts Class 1 like pay.
Must an employer pay the approved rate?
No. It may pay any rate or none; the approved rate is the tax-free ceiling. Many employers pay it because it is neutral for both sides.
How is the approved amount reported?
Payments within the approved amount are not reported. Excess payments go through payroll as earnings, and the employer keeps the mileage records that support the tax-free element.