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Mileage Rates For Company Cars in 2024

mileage rates for company cars

In the UK, it is standard practice for many businesses to offer their employees benefits, which can include company cars. Where cars are not provided, employees will be able to claim back money against the cost of the use of their car and the amount claimed is worked out using a ‘mileage rate’.

To calculate the mileage rate to be paid, you need to multiply the number of miles driven for business purposes with a predetermined cost per mile. HMRC offers a set figure to use but employers can choose to pay more than this if they wish.

This figure is intended to compensate employees for fair wear and tear of their car and fuel costs associated with using their car for business purposes.

Read on for more information about mileage rates, how they’re worked out, how they are used in business and the most efficient ways to keep track of them.

What Are Mileage Rates?

Mileage rates are the payments employees get from their employer when they make use of their vehicles for work related purposes.It is like a mini insurance, compensating for expenses such as fuel and wear and tear against the car during its use whilst working.

Mileage rates paid by employers vary based on several factors. This includes; the type of vehicle used, the total distance travelled, and most importantly, the purpose of the journey.

Generally, rates for business journeys are significantly higher than those for private use, with company cars commanding higher rates compared to personal vehicles.

How Do Mileage Rates Work? 

Mileage rates basically, operate on a per-mile basis, where the employers compensate employees with a set amount for every mile travelled for a work-related task. The current allowance set by HMRC, HM revenue and customs (HMRC) is 45p per mile up to the first 10000 miles and 25p per mile thereafter.

Employers, however, can pay their employee any amount per mile but anything above 45p per mile will be classed as benefit and will need to be reported on a P11D and then taxed.

These rates are designed to cover expenses associated with the use of personal vehicles for work and are basically incentives for employees to opt in their vehicles for use instead of relying on the company car.

How Are Mileage Rates Calculated?

If your employees regularly travel by car, you’ll know how tricky it can be to calculate that mileage accurately for reimbursement and tax purposes. There are tried and tested ways to do this though including;

Mileage allowance rate – based on distance travelled

HMRC mandates the standard mileage allowance rate every year. It is currently set at 45p per mile for the first 10000 miles. This rate considers depreciation, maintenance and operating costs, so as to determine the mileage rate for business purposes. This is the most commonly used method of reimbursement as it’s the easiest.

GPS Apps

Smartphone apps, and GPS trackers calculate mileage easily and accurately. They make use of GPS technology and can automatically upload the calculated mileage as an expense, enabling a streamlined mileage reimbursement process.

Good Ol’ Odometer

For many years, mileage has been calculated by recording the odometer readings at the beginning and end of a trip and simply using subtraction to calculate the total miles driven. Many still use the manual method, however, due to human error, it is often risky and subject to mistakes.

Keep in mind that some factors also play a significant role in the calculation of mileage rated and some of them include:

  1. Vehicle type: Different vehicles exhibit varying fuel consumption rates and maintenance costs. Employers consider these factors to determine a fair compensation rate.
  2. Distance travelled: the principle of ‘the more distance covered, the higher’ applies here. Employees who cover greater distances for work purposes generally receive higher mileage rates to account for increased fuel usage and also potential wear on their vehicles.
  3. Tax status of the employees: The tax status of an employee plays a crucial role in determining mileage rates. Those subject to higher tax rates might receive a higher mileage rate to help offset the additional tax burdens incurred during work related travel.

In general, a fair and reasonable mileage rate calculation is usually aimed by the employer in covering the costs linked to the use of personal vehicles for work-related activities.

Latest HMRC Mileage Allowance Payments

The latest HMRC mileage allowance payments (MAPs), effective from September 1, 2022, provide a structured approach for employers. Utilising advisory fuel rates is key for those offering company cars to their workplace, so as to make accurate calculations for the mileage costs.

The rates by engine type and fuel are highlighted in the table below.

  • Engine 1400cc or less – 15 pence per mile (petrol) and 9 pence per mile (LPG)
  • Engine 1401 cc to 2000cc – 18 pence per mile (petrol) and 11 pence per mile (LPG)
  • Engine over 2000cc – 27 pence per mile (petrol) and 17 pence per mile (LPG)
  • Engine 1600cc or less – 14 pence per mile (diesel)
  • Engine 1601cc to 2000cc – 17 pence per mile (diesel)
  • Engine over 2000cc – 22 pence per mile (diesel)
Engine typeFuelMileage rates (per mile)
1400 cc or lessPetrol15 pence
1401 cc – 2000 ccpetrol18 pence
Over 2000 ccpetrol27 pence
1600 cc or lessDiesel14 pence
1601 cc – 2000 ccDiesel17 pence
Over 2000 ccDiesel22 pence

For employees on business trips using their personal cars, the reimbursement procedures is calculated in the steps below;

Vehicle typeTax purposes (per mile)National Insurance Purposes (per mile)
Car45 pence (first 10000 miles), 25 pence (subsequent miles)45 pence (all business miles)
Motorcycle24 pence24 pence
Cycle20 pence20 pence

How Are Mileage Rates Taxed?

The taxation of mileage rates is contingent upon factors such as the purpose of the journey and the employee’s tax status.

Generally, mileage rates become subject to income tax and National Insurance contributions (NICs) if they surpass the Approved Mileage Allowance Payments (AMAPs) established by HMRC. AMAPs denote the maximum tax-free rates applicable to employees for business mileage in their personal vehicles.

Current AMAP Rates (UK):

As it has been previously stated in the article, 45p per mile for the initial 10000 business miles in a tax year and 25p per mile for any additional business mile subsequently.

Exceeding the AMAP rate subjects the surplus to income tax and NICs. Employers are obligated to report such payments on their P11D forms at the tax year’s end.

Conversely, if an employer pays a mileage rate that is below the AMAP rate, the employee can seek tax relief on the difference. This can be done through self- assessment tax return or by direct communication with HMRC.

For employees provided with a company car, a tax charge determined by the car’s list price and CO2 emission, is typically applicable. However, if the company car is used for business purposes, and the employee receives a mileage rate, potential tax relief may be provided for all expenses incurred for the journeys.

What Constitutes a Business Trip?

A business trip is any travel or journey conducted on behalf of a company, business or organisation, typically excluding daily commutes or personal leisure trips.

Examples of business trips include, networking events, client or supplier visits, attending conferences, trade shows, location scouting, discussions and finalisation of deals.

Additionally, it is important to note that the requirements for defining a business trip can vary depending on the specific circumstances of the journey. For Instance, if an employee makes a detour during a business trip, only the portion directly related to the work is deemed a business trip.

In accordance with the above analysis, it is left for the employer to decide the status of a journey as a business trip.

What Happens If I Have More Than One Vehicle?

Having more than one vehicle poses no issue at all as mileage rates are charged per vehicle and not per individual or person.

Can I Claim Mileage For an Electric Car?

Absolutely, you can claim mileage for an electric vehicle used for business-related activities, similarly to how you can use petrol or diesel vehicles. The rules of mileage rating for electric vehicles are slightly different from vehicles powered by fossil fuels.

Currently, the Approved Mileage , Allowance Payment, AMAP, for electric vehicles is set at 8 pence per mile, which is a bit less than vehicles run on traditional modes of fuel.

With proper and careful usage, it is worth mentioning that the cost of running an electric vehicle is significantly less than petrol or diesel vehicles, due to little to no fuel cost as well as reduced maintenance requirements. For these reasons, the AMAP rates for electric vehicles are generally lower.

Do I Have to Pay Tax For My Company Car?

In the UK, having a company car often entails paying the Benefit In Kind (BIK) tax if it is used for private use, personal or commuting to and from work. This tax is calculated specifically based on the type of vehicle.

BIK tax applies to employees who receive additional benefits or perks alongside their salary, with the focus on the personal use of company cars. Each car falls into the BIK percentage band, determined by CO2 emission as well as P11D value.

To calculate the company car tax or BIK tax, multiply the P11D value by the BIK percentage banding, then multiply the result by your tax band – 20% or 40% as the case may be. This yields the annual tax which can be further divided by 12 to obtain the monthly expenditure

How to Track Company Mileage Costs as an Employer

As an employer, tracking a company’s mileage cost is more than just managing expenses, it’s an important process in staying tax compliant.

To keep on top of mileage tracking and claims in your business, consider the following simple steps:

  1. Establish a mileage reimbursement policy: A set of rules ought to be drafted on the procedures for the reimbursement of mileage expenses as well as specifying rates, restrictions and regulations related to mileage claims.

This should be shared with all employees and regularly reviewed/updated as part of your policy review schedule.

  1. Choose a mileage tracking system: Mileage tracking systems range from simple paper logging of the odometer to sophisticated methods like GPS systems. Employing the best suited method is based on the business needs so be sure to evaluate costs, use volume and time saving made.
  2. Train employees on mileage tracking: Once a standard policy is set and an appropriate mode of tracking mileage has been identified, educating the employee is next. Helping employees to feel comfortable using any tracking software and expense claim software will enable the best uptake possible as well as smoother handling of business expense claims.
  3. Review and Audit: Expense claims should regularly be audited to ensure that staff are only claiming for valid business trips in their expense claims. All expense claims should be filed centrally in a secure manner so that they can be referred back to if needed.

Final Thoughts

To recap, understanding mileage rates is important for both employers and employees. Taking the time to establish clear reimbursement policies and tracking systems, and educating staff on how to use the systems deployed can create efficient expense claiming processes at work that ensure tax compliance.

As the use of electric vehicles is on the rise, business managers should stay informed of their differing mileage rates and tax implications.

With careful management, companies can create a streamlined and easy to use mileage tracking process that saves them time and money in managing it whilst ensuring that employees are fairly compensated for using their personal vehicles for work purposes.

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