If your employees use their own car for business journeys, you may choose to reimburse them for mileage costs. But did you know that paying above HMRC’s approved rates could result in extra tax and National Insurance costs?
Understanding the Approved Mileage Allowance Payments (AMAPs) scheme is key to staying compliant and avoiding unnecessary tax bills. Here’s what you need to know.
What is the AMAP Scheme?
The Approved Mileage Allowance Payments (AMAPs) scheme sets out the maximum mileage rates that employers can pay tax-free to employees who use their own vehicle for business travel.
Important: The AMAP scheme does not apply to employees who drive company cars.
The approved mileage rates for different vehicles are:
| Vehicle Type | Approved Mileage Rate |
| Cars & Vans | 45p per mile (first 10,000 miles) 25p per mile (after 10,000 miles) |
| Motorcycles | 24p per mile |
| Bicycles | 20p per mile |
These rates are set to cover fuel, insurance, servicing, and wear and tear—but what happens if you pay above or below these rates?
Paying More Than the Approved Mileage Rate
If you pay employees above the HMRC-approved rates, the excess is taxable.
However, the calculation is based on the tax year as a whole—not per journey. This means that even if you pay more for some trips, there’s no tax liability if total payments for the year remain within HMRC’s approved limits.
Example: Paying Above the Approved Rate
Shay drives 10,200 business miles and is paid a mileage rate of 30p per mile.
- For his final 150-mile trip, the approved rate is only 25p per mile (since he has exceeded 10,000 miles).
- However, for the year as a whole, the approved mileage amount is £4,550 (10,000 miles @ 45p + 200 miles @ 25p).
- His total mileage reimbursement for the year is only £3,060 (10,200 miles @ 30p per mile).
Since the total does not exceed the approved amount, all payments are tax-free, even though the final journey was paid above the approved rate.
Now, let’s see what happens if Shay was paid 50p per mile instead.
- His total mileage payments would be £5,100 (10,200 miles @ 50p).
- Since this exceeds the approved amount of £4,550, the excess £550 (£5,100 – £4,550) would be taxable.
Paying Less Than the Approved Mileage Rate
If you pay employees less than HMRC’s approved rates, they can claim tax relief on the shortfall through their Self Assessment tax return or by submitting a claim to HMRC.
If you don’t pay any mileage allowance at all, employees can still claim tax relief for the full approved mileage amount.
National Insurance Rules for Mileage Payments
National Insurance Contributions (NICs) have slightly different rules for mileage payments.
For NIC purposes, a flat rate of 45p per mile applies for cars and vans—regardless of how many miles are driven.
Unlike tax calculations (which are assessed annually), NIC-free mileage allowances are calculated per earnings period (e.g. weekly or monthly).
This means National Insurance liabilities could arise sooner than tax liabilities if mileage is paid at higher rates in some months but lower in others.
Key Takeaways
- Sticking to HMRC’s approved mileage rates ensures payments remain tax and NIC-free.
- Paying more than the approved rate? The excess is taxable but only if total payments exceed the annual threshold.
- Paying less than the approved rate? Employees can claim tax relief on the shortfall.
- NIC calculations are based on individual earnings periods, not the whole tax year.
Need Advice on Mileage Payments?
If you reimburse employees for mileage, it’s important to get the tax treatment right—otherwise, you or your employees could end up with an unexpected tax bill.
Jon and the team can help you structure mileage payments correctly and stay compliant with HMRC rules. Get in touch today!
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Any questions?
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