If an employee uses their private car for work journeys, businesses can choose to reimburse the employee for related expenses. However, businesses are not obligated to do so, and they can choose the per-mile amount they pay. So how much should an employer pay per mile for business travel? We discuss this below, covering the HMRC's allowable amounts and looking at real-life cost breakdowns for fuel per mile as well as other car-running expenses.
HMRC Mileage Allowance Payment
Employers can pay their employees up to 45p per mile for work-related driving, without having to report this to HMRC or pay tax (subject to a cap of 25p per mile for mileage over 10,000 miles per year and 24p for motorcycles).
Employers who pay more than this government-approved allowance (e.g. 45p per mile) must report this on form P11D and add any amounts above the approved amount to the employee's pay (and deduct and pay tax as usual on these amounts).
For tax reasons, amounts an employer pays an employee for using their vehicle for business journeys are called 'Mileage Allowance Payments' or MAPs.
Here is a table showing the maximum tax-free MAPs for different types of vehicles and annual business-related mileage.
|Approved rates per business mile||Up to 10,000 miles per year||Above 10,000 miles per year|
|Cars and vans||45p||25p|
So, an employer can pay the maximum allowable MAPs for tax purposes per the table above, or they can pay more than this (and pay the associated taxes, also as mentioned above)—or they can pay less than these amounts. What happens then?
Let's look at the tax implications next. Then we'll dig into the numbers to see what the real per-mile costs are to run a car. This is important data to have at hand when thinking about how much an employer should reimburse an employee for work-related driving—whether you're the employer or employee.
What if an employer pays less than the 45p per mile allowance?
If an employer pays less than the approved amount (e.g. 45p per mile), the employee can get tax relief called Mileage Allowance Relief (MAR) on the unused balance of the approved amount. For example, if an employer pays 25p per mile then the employee can claim tax relief of 20p per mile (45p less 25p).
The employer can report these unused balances to HMRC under a scheme called the 'Mileage Allowance Relief Optional Reporting Schem'e (MARORS)—the employer will need to contact HMRC to join this scheme.
If one employee drives another employee in their own car (or van) on a business trip, the business can pay up to 5p per mile to the driver—you may hear this referred to as a 'passenger payment'. It is a tax-free payment that does not have to be reported to HMRC. Read more here.
Real Per Mile Costs
Cost of fuel per mile
Fuel costs around 20.1 pence per mile for a petrol car and 17.9 pence per mile for a diesel car—assuming the cost of fuel is 160p/litre for petrol and 170p/litre for diesel. (And electric cars cost around 7-9p per mile for the electricity).
However, the fuel cost per mile varies by engine size. A car with a larger engine (that is, higher CCs, larger horsepower) will burn more fuel and have worse fuel economy (lower MPG). That means cars with more CCs cost more in fuel per mile. The table below gives our estimates for the per mile cost to fuel cars of different sizes.
|Cost of Petrol per Mile||Average MPG||Cost per mile|
|up to 1400 cc||46||17p|
|1401 to 2000 cc||42||18p|
|Over 2000 cc||34||23p|
|up to 1600 cc||50||16p|
|1601 to 2000 cc||46||18p|
|over 2000 cc||40||20p|
Overall running costs per mile
We've heard of some employers only reimbursing for the additional fuel costs associated with business journeys. But there are other costs as well. For instance, more miles means faster depreciation on a car. And any private car being used for business journeys like visiting client sites or for running work errands must be covered by 'business use' insurance, which adds to the cost of car insurance.
NimbleFins analysis of petrol, insurance, tax, depreciation, repairs, parking fees and more indicate that the cost to drive a car is now around 47p per mile, which we discuss in more depth in our article on the cost to run a car. But essentially, average annual car running costs are £3,556; when divided by the average car mileage of 7,600 miles per year, this yields an average per-mile cost of 47p.
While costs can vary depending on factors like the value of the car, the insurance rate and car fuel efficiency, our calculations show that it would be most fair for employers to pay the full 45p 'approved amount' per mile, and not try to only pay for fuel (as we've heard some do).
Keep in mind that the 45p tax allowance has not been updated since the 2011/12 tax year, so it is not exactly finely tuned to today's real costs.
What do our readers have to say?
In the poll below, please tell us how much your employer pays per mile. We want to gather enough data to share the results with news organisations, highlighting how some employers simply don't reimburse enough. Don't worry, the poll is completely anonymous.
No, an employer is not obligated to pay the approved 45p per mile car allowance. This is the amount up to which they can pay without any tax implications. Above this amount, they'll need to report via form P11D and add the additional amounts to the employee's pay (deducting and paying tax as usual).
You can claim for miles driven for work, such as visiting clients, doing work-related errands or driving between different work sites.
You cannot claim for miles commuting between home and a permanent place of work. However, you can claim for miles driven between home and a temporary place of work.
The 'HMRC-approved' mileage rate for tax purposes is 45p per mile for cars and vans, for up to 10,000 miles of work-related driving. Above 10,000 miles the approved mileage rate is 25p per mile for cars and vans. The rate for motorcycles and bikes is 24p and 20p, respectively.
No, an employer is under no obligation by law to pay employees mileage for work-related driving. However, they can (and in our opinion should).