Clarifying tax-free mileage

February 2nd 2023

With increasing fuel costs, employees have been asking whether the amount they are reimbursed for business travel in their own car can be increased. The government has recently clarified its guidance on this. What are the rules?  Naomi Swan discusses below.

Tax-free mileage rates
The HMRC approved tax-free mileage rates for 2022/23 (which are the same as for the previous twelve years) are:
45p for the first 10,000 miles
25p for each business mile above the 10,000 miles threshold

An employee travels 12,000 miles for work using their own vehicle. You can subsidise their fuel and vehicle running costs by paying them up to the HMRC approved amount of £5,000 (10,000 x 45p plus 2,000 x 25p).

Can you pay more?
This question has been asked many times this year due to the rising fuel prices. In a response to a 2022 parliamentary e-petition about the approved tax-free mileage rates, the government stated that employers could reimburse the actual expenditure in relation to business mileage tax and NI free.

However, the government has since clarified that this only relates to volunteer drivers and not employees. Where an employer reimburses more than the approved tax-free rates, you will need to show the difference on each employee’s payslip and deduct PAYE and NI on it.

Following confusion over the tax status of business mileage rates, the government has confirmed that tax-free payments are capped at 45p per mile. If your company pays higher rates, you need to include the difference on the employee’s payslip and deduct PAYE and NI.