Grey Fleet Mileage Policy 2026/27: What Employers Must Get Right on Tax

What "Grey Fleet" Means for a Small Employer

Many small and medium UK businesses don't run a company car fleet at all — instead, staff use their own privately owned cars for business travel (visiting clients, attending sites, running errands between locations) and are reimbursed per mile. This is the "grey fleet," and getting the reimbursement policy right matters because HMRC's Approved Mileage Allowance Payments (AMAP) scheme sets clear boundaries for what can be paid tax-free.

The AMAP Rates and Why They Matter

HMRC's approved rates for employees using their own car or van for business travel are 45p per mile for the first 10,000 business miles in a tax year, and 25p per mile for any business mileage beyond that, in the same tax year, for the same employee. These flat rates are designed to cover fuel, insurance, servicing, depreciation and general wear and tear in one figure, so an employer paying within these rates doesn't need to separately track or gross up actual running costs.

Because the rates are set at a level HMRC considers to fairly compensate an employee for the genuine cost of using their own vehicle, payments within them are tax-free and NI-free for the employee, and don't attract employer NI either — making AMAP-rate mileage one of the most administratively simple tax-free benefits an employer can offer.

Getting the 10,000-Mile Threshold Right

A common payroll mistake is applying the 45p rate to every trip without tracking cumulative mileage across the tax year for each individual employee. The drop to 25p per mile applies once a specific employee's total business mileage for that tax year (across all trips, for that employer) passes 10,000 miles — it isn't reset each month, each quarter, or per project. Employers with staff doing high-mileage roles (field service engineers, sales reps, home-visiting care workers) need a system that tracks year-to-date mileage per person, not just per claim, to apply the rate correctly.

What Happens With Over- and Under-Payments

Paying more than AMAP rates: any excess above 45p/25p per mile is treated as additional taxable earnings, subject to income tax for the employee and Class 1 National Insurance for both employee and employer. Some employers do this deliberately as an enhanced benefit, but it needs to be run through payroll correctly, with tax and NI applied to the excess, not paid as if it were still tax-free mileage.

Paying less than AMAP rates: entirely legal — employers aren't obliged to pay the full 45p/25p — but employees are then entitled to claim Mileage Allowance Relief on the shortfall, effectively getting income tax relief on the difference between what they actually received and the full approved rate, claimed via Self Assessment or a P87 form for those who don't otherwise file a return.

Reporting Requirements

Mileage payments that stay within the AMAP rates generally don't need to be reported to HMRC on a P11D, since they're not a taxable benefit. Payments above the approved rates do need to be reported and taxed — either processed through payroll in real time (payrolling benefits) or reported after the tax year ends via P11D, with any tax due collected through the employee's tax code or Self Assessment.

Building a Simple, Compliant Grey Fleet Policy

For most small employers, the practical approach is: pay exactly the AMAP rates (no more, no less) up to 10,000 business miles per employee per tax year, then drop to 25p per mile after that, tracked centrally rather than trip by trip, with a simple mileage log (date, destination, purpose, miles) retained as evidence. This keeps the whole arrangement tax-free and NI-free for both employer and employee, with minimal payroll complexity.