For Employees Using Their Personal Cars

If your employees use their own cars for business journeys, you can reimburse them with tax-free mileage payments up to an ‘approved amount.’ Wondering what this approved amount is? It’s the employee’s business mileage in their own car in the tax year multiplied by the approved rate.

For cars and vans, here’s how it breaks down:

  • First 10,000 business miles: 45p per mile.
  • Beyond 10,000 miles: 25p per mile.

For example, if an employee drives 12,000 business miles in the tax year, you can make mileage payments of up to £5,000 tax-free. Anything over the approved amount is taxable, but if you pay less, your employees can claim tax relief for the difference.

Remember, these approved amounts are the maximum that can be paid tax-free. Even if actual costs exceed this, you cannot make higher payments tax-free.

National Insurance also comes into play, and you can make these mileage payments free of it. Just note, the 45p rate is used for all business mileage, and any excess should be included in gross pay for National Insurance purposes.

For Employees Using a Company Car

Does your employee have a company car? The approved rates don’t apply in this case. Instead, HMRC publishes quarterly fuel-only rates, or advisory fuel rates, to make tax-free mileage payments for those who use a company car for business and pay for their own fuel.

The rates as of 1 June 2023 are:

Petrol:

  • Up to 1,400cc: 13p per mile
  • 1,401 to 2,000cc: 15p per mile
  • Over 2,000cc: 23p per mile

LPG:

  • Up to 1,400cc: 10p per mile
  • 1,401 to 2,000cc: 12p per mile
  • Over 2,000cc: 18p per mile

Diesel:

  • Up to 1,600cc: 12p per mile
  • 1,601cc to 2,000cc: 14p per mile
  • Over 2,000cc: 18p per mile

 

For Electric Company Cars: A rate of 9p per mile tax-free applies. Plus, payments up to the advisory rates can be made free of National Insurance.

 

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Any questions?

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