How does mileage allowance relief work if my employer pays me less than 45p a mile?

Full answer

Many employees who use their own car for business journeys are paid a mileage rate by their employer that is lower than HMRC's Approved Mileage Allowance Payment rates, and Mileage Allowance Relief exists specifically to let them claim back tax on that shortfall. **The approved mileage rates** HMRC's Approved Mileage Allowance Payment (AMAP) rates for a car are 45p per business mile for the first 10,000 miles in a tax year, dropping to 25p per mile for any business mileage above 10,000 miles in the same year -- these rates are designed to approximate the true cost of running a car for business use (fuel, wear and tear, insurance, and so on), and payments up to these rates can be made by an employer entirely free of tax and National Insurance. **What happens if your employer pays less than the approved rate** If your employer pays a lower mileage rate than the AMAP rates (for example, 30p a mile instead of 45p), you can claim Mileage Allowance Relief on the difference between what you were actually paid and what the approved rate would have given you -- this relief effectively gives you tax relief (at your marginal rate) on the shortfall, though it does not refund the shortfall itself in cash, only the tax that would otherwise have been paid on that amount. **Worked example** An employee drives 8,000 business miles in a tax year and is paid 25p a mile by their employer, a total of £2,000. At the approved rate of 45p a mile, they would have been entitled to £3,600 tax-free. The shortfall is £3,600 minus £2,000 = £1,600. As a basic-rate taxpayer, claiming Mileage Allowance Relief on this £1,600 shortfall would give tax relief of 20% of £1,600, or £320, either as a reduction in tax owed or a refund, depending on how the claim is processed. **How to claim the relief** Employees who already complete Self Assessment can claim Mileage Allowance Relief directly on their tax return each year. Employees who do not otherwise need to file Self Assessment can instead use form P87 (or the equivalent online HMRC service) to claim the relief, provided the claim is below the relevant threshold for using this simplified route -- larger or more complex claims, or claims that push someone over the P87 threshold, may need a full Self Assessment return instead. **What if your employer pays MORE than the approved rate?** If an employer pays mileage at a rate ABOVE the AMAP rates, the excess over the approved rate is treated as a taxable benefit and should be reported and taxed accordingly (typically through payroll or a P11D), which is the reverse situation to Mileage Allowance Relief -- most employees experiencing this issue will be underpaid relative to the approved rate rather than overpaid, but it is worth checking your specific employer's mileage policy against the approved rates either way. **Passenger payments and other vehicle types** Separate approved rates apply to motorcycles (24p a mile, with no lower rate after 10,000 miles) and bicycles (20p a mile), and an additional 5p per mile passenger payment can be paid tax-free for each fellow employee passenger carried on a business journey -- Mileage Allowance Relief can potentially apply to shortfalls against these rates too, not just the standard car rate. **Practical tip** Keep a detailed, contemporaneous mileage log recording the date, purpose, and mileage of every business journey made in your own vehicle, compare what your employer actually paid against the HMRC approved rates for your total annual business mileage, and claim Mileage Allowance Relief on any shortfall through Self Assessment or a P87 form.

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