Pillar Guide · Updated May 2026
UK Business Mileage Allowance: A Practical Guide for 2025/26
Roughly 4 million UK employees and 1.5 million self-employed claim business mileage in any given year, collectively running tens of billions of business miles for HMRC tax relief. The rules cluster around the Approved Mileage Allowance Payments scheme — the tax-free 45p/25p (and 24p/20p) per-mile rates first set in 2011 and frozen ever since. This pillar guide covers the entire framework for 2025/26: AMAP rates, Mileage Allowance Relief for employees, the self-employed flat-rate vs actual-cost choice, the 24-month temporary workplace rule, passenger payments and VAT recovery on fuel.
AMAP Rates
The Approved Mileage Allowance Payments scheme sets statutory tax-free rates at which an employer can reimburse an employee for using their own vehicle on business. The rates have not changed since 6 April 2011 — a remarkable 14-year freeze given the real cost of motoring has risen substantially. For 2025/26 the rates remain:
| Vehicle | First 10,000 business miles | Above 10,000 business miles |
|---|---|---|
| Cars and vans | 45p / mile | 25p / mile |
| Motorcycles | 24p / mile | 24p / mile |
| Bicycles | 20p / mile | 20p / mile |
Payments at or below these rates are tax-free and NI-free for both employer and employee. Payments above the rates are treated as taxable employment earnings and attract PAYE and Class 1 NI on the excess. Payments below the rates can be topped up by the employee via Mileage Allowance Relief (MAR), reclaiming the tax (but not the NI) on the shortfall.
What Counts as Business Mileage
The legal test is in Section 337-339 of the Income Tax (Earnings and Pensions) Act 2003: business mileage is travel that is necessary for the duties of the employment. In practice this means travel from one workplace to another, or from a workplace to a temporary workplace. Travel from home to a permanent workplace is ordinary commuting and does not count, no matter how essential the trip feels.
Examples of business mileage: a sales rep driving from the office to client meetings; a builder going from site to site; a nurse visiting patients in the community; an engineer attending a one-off training course in another city. Examples that do NOT count: driving from home to the office (commuting); driving from one office to home at end of day (commuting); driving to a client meeting that happens to be near your own home en route from the office (only the office-to-client leg is business).
The category of “temporary workplace” is the most contentious area. A workplace is temporary if you reasonably expect to spend less than 24 months working there. This catches consultants, contractors, project-based engineers, and trainees who attend client or training sites for limited periods. The next section covers the 24-month rule in detail.
The 24-Month Temporary Workplace Rule
Section 339 ITEPA 2003 defines a temporary workplace by reference to the 24-month rule. As soon as you reasonably expect to spend 24 months or more at a particular site, OR you have already spent more than that, the site becomes a permanent workplace and ordinary commuting rules apply — no more business mileage relief from home to that site.
The rule applies prospectively. If you take a contract initially planned for 18 months but it gets extended to 30 months, business mileage stops from the moment you know the extension is going to push you past 24 months — not from the moment the contract was first signed. You cannot retrospectively reclassify the earlier periods that were genuinely temporary at the time.
A common contractor trap: HMRC adds up time spent across multiple short contracts with the same end client at the same site. Three consecutive 12-month placements with the same client at the same office over three years is treated as one continuous engagement for the 24-month test, not three separate temporary postings. Documentation matters: tax-tribunal cases turn on the genuineness of expectation at each commencement.
Mileage Allowance Relief for Employees
Mileage Allowance Relief is the route for employees whose employer pays less than the AMAP rate (or nothing at all) for business mileage. Section 336 ITEPA gives the statutory authority. You claim relief on the shortfall, reducing your taxable income by that amount.
Worked example: an employee drives 8,000 business miles in 2025/26. AMAP rate × miles = 45p × 8,000 = £3,600 of approved relief. Employer pays 30p × 8,000 = £2,400. Shortfall = £1,200. The employee claims MAR of £1,200, saving £240 of tax at the basic rate or £480 at the higher rate. The relief does NOT recover NI on the shortfall — only Income Tax.
MAR is claimed through Self Assessment (if you already file) or via form P87 if you do not — the P87 limit is £2,500 of expenses per year, above which Self Assessment registration is required. Claims can be backdated four tax years. The vast majority of MAR claims are settled through a coding adjustment in the following year rather than a cash refund.
Self-Employed: Flat Rate vs Actual Cost
Self-employed sole traders and partners have two methods to deduct vehicle costs from their business profit, and must pick one per vehicle and stick with it for the whole period of ownership.
Simplified expenses (the flat rate): 45p per mile for the first 10,000 business miles, 25p thereafter — the same rates as AMAP. Simple to administer, no need to track actual fuel/repair/insurance bills. Cannot also claim capital allowances on the vehicle. Best for low-to-medium mileage cars, especially newer and more economical ones where the flat rate exceeds true running cost.
Actual cost method:claim a business-use proportion of every actual cost — fuel, insurance, repairs, MOT, road tax, breakdown cover, parking — plus capital allowances on the vehicle's purchase price (18% per year writing-down allowance, 6% for high-emission cars, 100% First Year Allowance for new zero-emission cars). Requires meticulous record-keeping including a contemporaneous business-use percentage based on mileage logged. Best for high-mileage commercial vehicles and expensive cars where the 45p rate undershoots true cost.
The choice locks once you have submitted your first Self Assessment return including that vehicle. You cannot switch methods later on the same car. If you change vehicle entirely, the choice resets and you can pick again for the new vehicle. The simplified method is almost always the better answer for an ordinary family car doing 5,000-15,000 business miles a year.
Records HMRC Need
HMRC's expectation is a contemporaneous record of every business journey, capturing: date of travel; starting address; destination address; business purpose (with client or appointment name); odometer or GPS-confirmed business miles. Reverse- engineered or estimate-based records will be disallowed on enquiry.
Modern mileage apps (TripCatcher, MileIQ, Driversnote, QuickBooks Mileage Tracker, Xero Expenses) use phone GPS to automatically log every trip and prompt you to classify them as business or personal. They produce HMRC-compliant reports as a CSV or PDF. Paper logbooks remain acceptable — the format does not matter, only the completeness and contemporaneity of the record.
Retention periods: 6 years from the end of the tax year for self-employed (Self Assessment standard), or until the second anniversary of the end of the tax year for employee P87 claims. HMRC enquiry powers go back four years for non-careless cases and six for careless ones, so the six-year rule is the safe baseline for everyone.
Passenger Payments
An additional 5p per mile per passengercan be paid tax-free when you carry a fellow employee who is also travelling on business — the “passenger payment”. So a journey with one colleague pays 50p/mile (45p + 5p); with two colleagues 55p/mile. There is no cap on the number of passenger payments per journey, though practical car-seat limits apply.
Passenger payments do not apply for motorcycles, bicycles, or for non-employee passengers (family, friends, clients). They are entirely employer-funded — there is no MAR equivalent for an employee to claim relief on a passenger payment shortfall. If your employer does not offer passenger payments, you simply lose the benefit.
In practice, only a minority of UK employers operate passenger-payment schemes, partly because of the administrative overhead of verifying each passenger was a fellow business traveller. Public-sector bodies and large consulting firms are the most consistent users.
VAT Recovery and Advisory Fuel Rates
VAT-registered businesses can recover the VAT on the fuel element of business mileage paid to employees. HMRC publishes Advisory Fuel Rates (AFRs) quarterly, setting the assumed fuel cost per mile for company-car drivers. The latest 2025/26 AFRs are around 11-15p per mile for petrol cars depending on engine size, 10-14p for diesel, 7p for electricity on company EVs.
The recoverable VAT is calculated as 1/6 of the fuel element × business miles (because UK VAT at 20% means £100 net + £20 VAT = £120 gross, so the VAT proportion of the gross is 20/120 = 1/6). For 5,000 business miles at a 13p AFR, the fuel element is £650 and recoverable VAT is approximately £108. You need to retain VAT receipts equal to the recoverable amount as evidence.
Note the AFR and AMAP are different concepts. AMAP is the tax-free reimbursement rate paid to the driver. AFR underpins VAT recovery (and also sets the reimbursement rate for company-car drivers paying for their own fuel and being repaid). For a privately-owned car on business mileage, both apply: 45p AMAP to the driver, plus VAT recovery on roughly 13p of fuel element to the business.
Worked Examples
Example 1 — Employee at 8,000 business miles, employer pays 30p:AMAP entitlement = 45p × 8,000 = £3,600. Employer pays = 30p × 8,000 = £2,400. Tax-free shortfall via MAR = £1,200. At basic rate, MAR saves £240; at higher rate £480. Employee files form P87 (or Self Assessment if already in SA). HMRC adjusts the tax code or refunds via Bacs.
Example 2 — Sole trader at 15,000 business miles using simplified:First 10,000 miles × 45p = £4,500. Next 5,000 miles × 25p = £1,250. Total deduction from business profit = £5,750. At 20% basic rate that is £1,150 of Income Tax saved plus £345 of Class 4 NI saved at 6%; at 40% higher rate, £2,300 of tax saved plus £115 of Class 4 at 2%.
Example 3 — VAT recovery on the employer side:employer reimburses an employee 45p × 8,000 = £3,600 tax-free. AFR for the employee's 1.6L petrol car is 12p/mile, so the fuel element = 12p × 8,000 = £960. Recoverable VAT = £960 ÷ 6 = £160. The employer needs £960 of VAT receipts to support recovery.
Example 4 — Driver with passenger: drives 5,000 miles with a colleague on board for half of them. Driver payment: 5,000 × 45p = £2,250. Passenger payment: 2,500 × 5p = £125. Total tax-free reimbursement: £2,375. The £125 passenger payment is in addition to and on top of the main mileage rate.
Common Mistakes
First and most common: claiming home-to-office miles as business. They never qualify unless your home is a genuine business base (rare and requires specific HMRC criteria — typically only applies to homeworkers with no permanent office and specific equipment requirements).
Second: incorrectly applying the 10,000-mile threshold per vehicle. The 10,000 limit is per tax year per individual, regardless of how many vehicles you use. Using two cars does not reset the threshold; you still hit 25p once your combined business mileage passes 10,000.
Third: switching methods mid-vehicle as a sole trader. Once you have started using the simplified method on a vehicle in one tax return, you cannot switch to actual cost on the same vehicle in a later year.
Fourth: forgetting MAR is available. HMRC estimates that millions of pounds of MAR go unclaimed every year because employees with sub-AMAP reimbursement do not realise they can top up via Self Assessment or P87. The four-year backdating window means you can still claim 2021/22-2024/25 right up to 5 April 2026.