Rajan Wilcox
Employees who use their own vehicles for work-related travel may be able to claim tax relief on the approved mileage rate. This covers the cost of owning and running a vehicle, including fuel. The amount that can be claimed depends on whether the vehicle is owned or leased by the employee or provided by the employer. If an employee uses a company car for business travel, they can claim the cost of fuel and electricity, providing accurate records are kept. In the UK, the HMRC advisory fuel rates state that in most circumstances, employees can claim business mileage at a rate of 45p per mile for the first 10,000 business miles in a year and then 25p per mile thereafter.
Car Fuel Allowance
| Characteristics | Values |
|---|---|
| Who can claim? | Employees who use their own car for business journeys |
| What can be claimed? | Tax relief on the approved mileage rate |
| What is not covered? | Owning and running costs like fuel and MOTs |
| Mileage allowance | 45p per mile for the first 10,000 miles in the financial year and 25p per mile thereafter |
| Additional allowance | 5p per mile per passenger rate for each qualifying passenger from the same business |
| Tax exemption | Up to ₹2400 per month for employees with taxable income |
| Fuel allowance season | September to April |
| Fuel allowance rate | €33 per week |
| Assessable income limit | Maximum State Pension (Contributory) + €200 |
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What You'll Learn
Claiming car mileage allowance
If you use your own car for business journeys, you can claim a tax-free mileage allowance of 45p per mile for the first 10,000 business miles in a year and then 25p per mile thereafter. This mileage allowance can be used to cover things other than fuel, including running costs such as insurance and repairs. If your employer reimburses you at a lower rate, you can claim the additional amount as a deduction from your taxable income. For example, if your employer only reimburses you at 35p per mile, you can claim an additional 10p per mile as a deduction from your taxable income.
If you travel with fellow employees from the same business, the driver can claim an additional 5p per mile passenger rate for each qualifying passenger. To qualify, each of the passengers must be employed by, or be an officer of, the business.
If you use a company car for business travel, you can claim the cost of fuel and electricity, providing you keep accurate records. You can claim tax relief on the money you've spent on fuel and electricity for business trips in your company car.
If you use cash basis accounting, you can claim this as a capital allowance, and all other purchases for business should be claimed as an allowable expense, including fuel, parking, and overnight stays.
Employers can offer to pay for either business fuel/mileage or for all fuel/mileage (i.e., both business and private fuel). If an employer pays for an employee's private fuel, and this is not reimbursed, a benefit-in-kind (BIK) tax known as Car Fuel Benefit Tax is payable by the employee in the form of Class 1A National Insurance contributions.
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Fuel benefit tax
In the UK, employees who use their own cars for business journeys can claim tax relief on the approved mileage rate. This is known as the Advisory Fuel Rate (AFR) and is reviewed and amended regularly by HMRC. The current rate is 45p per mile for the first 10,000 business miles in a year and 25p per mile thereafter. This mileage allowance can be used to cover costs such as insurance and repairs, and the portion used for fuel is subject to the AFR, which can be claimed back in VAT. For example, as of June 2018, a 1401cc to 2000cc petrol car would have an AFR of 14p per mile, resulting in a VAT claim of 2.33p per mile.
If an employee uses a company car for business travel, they can claim tax relief on fuel and electricity expenses, but they must keep accurate records. This includes mileage logs detailing the date, purpose, destination, and mileage of each trip. These logs can be maintained through mobile apps that track mileage, making the process more efficient.
In the United States, the Internal Revenue Service (IRS) offers the Fuel Tax Credit to help taxpayers reclaim federal tax paid on fuels used for non-taxable purposes. This credit is typically available to farmers, business owners, and nonprofit organizations that rely on diesel, gasoline, or alternative fuels for off-highway business activities. Eligible fuel types include gasoline, diesel, kerosene, and aviation gasoline. To claim the credit, individuals or businesses must complete Form 4136, providing a list of vehicles and equipment used, proof of ownership, and receipts for fuel purchases. It is important to note that the Fuel Tax Credit does not apply to taxable uses, such as fuel for personal or highway use.
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Jobseeker's allowance
If you are claiming Jobseeker's Allowance, you may be eligible for a fuel allowance to cover the cost of heating your home. To qualify for a fuel allowance, your income must be less than the maximum State Pension (Contributory) plus an additional €200. This is called the 'assessable income limit'. For example, in 2025, the maximum State Pension (Contributory) for a single person aged 66 is €289.30. You then add €200 to get a total weekly income limit of €489.30.
If you are under 66, you must be legally resident in the state and be mainly responsible for the heating costs of your household. You must also be receiving a qualifying payment, such as Jobseeker's Allowance for more than 312 days. Days on Jobseeker's Benefit (JB) and Pandemic Unemployment Payment (PUP) can count towards the 312 days if your JB or PUP was immediately before your Jobseeker's Allowance claim.
If you are 66 or over, you do not need to be receiving a qualifying social welfare payment to get a fuel allowance. However, you must satisfy a means test. Social welfare payments are either based on your PRSI contributions (social insurance payments) or means-tested social assistance payments.
If you are claiming Jobseeker's Allowance and your spouse, civil partner or cohabitant is on a Community Employment (CE) scheme, they can be considered a qualified adult on your payment if you apply for a fuel allowance. If you were receiving a fuel allowance before starting a CE scheme, you can keep your fuel allowance.
If you are an employee, your employer may offer a fuel allowance to reimburse your fuel costs for work-related travel. This is usually given as a fixed amount or a pence-per-mile rate. You can reclaim business mileage regardless of whether you own the vehicle or it is leased. To reclaim fuel expenses, you must keep and submit a detailed vehicle log to your employer.
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Tax-free benefits
In India, employers can offer a fuel allowance to employees who use their personal vehicles for work-related travel. This allowance is added to the employee's salary as a tax-saving component and is exempt from tax under section 10. The government has set a maximum limit of ₹2,400 per month for this allowance.
In the UK, employees who use their own vehicles for work can claim tax relief on the approved mileage rate, which is currently 45p per mile for the first 10,000 business miles in a year and 25p per mile thereafter. This rate covers the cost of owning and running a vehicle, including fuel. If an employer reimburses their employees at a lower rate, the employee can claim the additional amount as a deduction from their taxable income.
In Australia, car allowances are considered taxable income and must be included in an individual's annual tax return. Employees who use their own vehicles for work can claim tax deductions for various expenses, including fuel and insurance. However, they must keep records of all vehicle expenses to claim these deductions.
In general, tax-free benefits or allowances for car fuel vary depending on the country and specific circumstances, such as the purpose of the travel and the type of vehicle used. It is important for individuals to seek independent financial advice and refer to their local tax regulations to understand the specific tax-free benefits they may be eligible for.
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Advisory fuel rates
The advisory fuel rates are worked out from the fuel prices in these tables. For example, the advisory electric rate for fully electric cars was 7 pence per mile from 1 June 2025. Hybrid cars are treated as either petrol or diesel cars for advisory fuel rates.
The advisory fuel rates only apply to employees using a company car. If the mileage rate you pay is no higher than the advisory fuel rates for the engine size and fuel type of the company car, there will be no taxable profit and no Class 1A National Insurance to pay. If your cars are more fuel-efficient, or if the cost of business travel is higher than the guideline rates, you can use your own rates to reflect your situation.
If your employer reimburses you at a lower rate than the HMRC advisory fuel rate, you can claim the additional amount as a deduction from your taxable income from HMRC through your tax return. For example, if your employer reimburses you at 35p per mile, you can claim the additional 10p per mile as a deduction from your taxable income.
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Frequently asked questions
A fuel allowance is a payment to help with the cost of fuel for heating your home during the winter months or for work-related travel.
If you use your own vehicle for work-related travel, you may be able to claim tax relief on the approved mileage rate. The UK mileage rates differ, but HMRC advisory fuel rates state that in most circumstances, you can claim business mileage at a rate of 45p per mile for the first 10,000 business miles in a year and then 25p per mile thereafter.
To calculate your fuel allowance, you need to determine how much of the mileage allowance would be used for fuel. As of June 2018, a 1401cc to 2000cc petrol car would have an AFR of 14p per mile. You then multiply this by 0.166 (20% VAT divided by 120) to figure out the pence per mile – in this case, 2.33p. For each mile you pay, this is the amount that you can claim back in VAT.
Yes, employers can offer to pay for both business and private fuel. However, if the employee does not reimburse the cost of their private fuel, they will have to pay a benefit-in-kind (BIK) tax known as Car Fuel Benefit Tax.
To qualify for a fuel allowance for heating your home, your means must be less than the maximum State Pension (Contributory), including any increases you could get for dependents or living alone, plus an additional €200.
