Regan Brown
Many people use their personal vehicles for business-related travel, which can result in reimbursement for the accrued mileage and associated expenses. This reimbursement, also known as a Mileage Allowance Payment (MAP), is normally provided on a monthly basis and can be in the form of a per-mile rate or a lump sum for vehicle expenses. The per-mile rate is based on the price of the vehicle for tax purposes, which is usually the list price, multiplied by an appropriate percentage that takes into account the level of CO2 emissions and the type of fuel used. Advisory fuel rates are calculated based on fuel prices and vary depending on the type of car, with rates for petrol, liquefied petroleum gas (LPG), diesel, and electric cars. These rates are periodically updated, with the latest advisory electric rate for fully electric cars set at 7 pence per mile from 1 June 2025. It's important to note that different countries and organizations may have their own specific regulations and rates for fuel allowances per mile.
| Characteristics | Values |
|---|---|
| Mileage allowance payments for employees | Reimbursement for accrued mileage and expenses, including fuel, maintenance, and repairs |
| Mileage allowance relief | Claim from HMRC if the employer does not reimburse business-related vehicle expenses |
| Advisory fuel rates for fully electric cars | 8 pence per mile as of December 2022 |
| Advisory fuel rates for petrol, LPG, and diesel cars | Vary based on fuel prices and are updated periodically |
| Calculation of benefit charge for free or subsidised fuel | Based on a set figure known as the car fuel benefit multiplier |
| 5p per passenger per business mile | Applicable when carrying fellow employees in a car or van on work journeys |
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What You'll Learn
Mileage allowance payments
HMRC's rules on mileage claims for business mileage allow for reimbursement for cars, vans, motorcycles, and bicycles. Employees can claim all specific expenses connected with driving their personal vehicle for business purposes, including fuel, maintenance, and repairs. It is important to keep receipts and invoices as proof for all eligible expenses claimed.
If an employer does not reimburse their employees for business-related vehicle expenses, employees can claim Mileage Allowance Relief (MAR) from HMRC. This also applies to self-employed individuals. To be eligible for MAR, individuals must fulfil the requirements of what constitutes business-related driving and keep an HMRC-compliant mileage log.
Advisory fuel rates are published by the Department for Energy Security and Net Zero and are used to calculate the fuel benefit charge for free or subsidised fuel for private use. These rates are also used to determine the reimbursement amount for employees who pay for fuel used for business travel. The advisory fuel rate for fully electric cars as of June 1, 2025, is 7 pence per mile, while for petrol, LPG, and diesel cars, the rates vary based on fuel prices.
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Mileage allowance relief
To be eligible for MAR, journeys must be work-related and not part of your daily commute. Additionally, you must keep detailed records of your business mileage to support your claim in the event of an HMRC audit. These records should include the total amount of mileage allowance received from your employer. It is advisable to keep a comprehensive log of all your business travels, as well as receipts, to demonstrate transparency and compliance with HMRC regulations.
The ability to claim MAR is based on individual circumstances. If your employer fully reimburses you with the approved amount of mileage allowance for the year, you are not eligible for MAR. If you are paid more than the approved amount, any sum received above the advisory rate for your business mileage will be taxed through PAYE, and you will not be eligible for MAR. However, if your employer reimburses you below the approved amount or not at all, you are entitled to claim tax relief for the difference or for all your work miles at the advisory mileage rates.
The HMRC sets the rates for claiming MAR. For the 2025/2026 tax year, the rate is 45p for cars and vans for the first 10,000 miles. After 10,000 miles, the rate changes to 25p per mile. You can claim MAR for the amount not covered by your employer. For example, if your employer reimbursed you at a rate of 30p per mile for 4,500 miles driven for work, you can claim MAR for the additional 15p per business mile driven, resulting in a total of £675.00 GBP in mileage allowance relief.
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Fuel benefit charge
The fuel benefit charge is a tax on the benefit of free fuel for private use. It applies to UK taxpayers who use their company car for personal use and don't pay for the fuel themselves. This includes normal commuting, which is considered personal usage. The charge is calculated by multiplying the fuel benefit charge multiplier by the car's appropriate percentage, which is based on its CO2 emissions. The appropriate percentage varies from 3% to 37%, with lower emissions corresponding to lower percentages.
The fuel benefit charge can be reduced or eliminated in certain circumstances. For example, if an employee is required to cover the full cost of all private fuel and does so, the charge is reduced to nil. Proportionate reductions are also made if the company car is only available for part of the year, if private fuel is discontinued partway through the year, or if the benefit of the car is shared. Additionally, there is currently no fuel benefit charge for cars powered by electricity.
To calculate the exact benefit charge, you can refer to the HMRC's guidelines. They provide a mean MPG (miles per gallon) calculation, which is determined based on manufacturers' data and adjusted to reflect the distribution of specific models sold to businesses. This mean MPG is then reduced by 15% to account for real-world driving conditions and the fact that actual fuel efficiency is often lower. This adjusted MPG is then used in the calculation of the fuel benefit charge.
It is important to note that the advisory fuel rates are updated quarterly by HMRC to account for fluctuations in fuel costs. These updates occur regularly, ensuring that the rates remain current. From 2026, payrolling benefits will become mandatory, which means that businesses should consider switching to payroll processing for the car fuel benefit to stay ahead of the change.
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Fuel rates for electric cars
The cost of fuelling an electric car is typically much cheaper than a gas-powered vehicle. A 2018 study by the University of Michigan's Transportation Research Institute found that the average cost to fuel an electric car was $485 a year, compared to $1,117 for a gas-powered vehicle. Similarly, a 2020 Consumer Reports study showed that EV drivers tend to spend about 60% less each year on fuel costs compared to drivers of gas-powered cars.
The HMRC business mileage rates for electric cars are free from National Insurance Contributions and tax because they are not considered to provide any profit. The HMRC electric car mileage rate is reviewed quarterly and is subject to change regularly. Businesses can adopt their own rates for electric cars, and if the cost of travel is significantly higher for employees, the AER amount can be increased. However, in order to avoid paying NIC and tax, the reason for this adjustment must be evidenced and provided to the HMRC.
The advisory fuel rates for electric cars are worked out from fuel prices. From 1 June 2025, the advisory electric rate for fully electric cars will be 7 pence per mile. Previously, from 1 December 2022, the advisory fuel rate for fully electric cars was 8 pence per mile, up from 5 pence.
The cost of fuelling an electric car can be estimated by multiplying an EV's kilowatt-hour (kWh/100) mileage rate by the electricity rate (measured in cents per kWh and typically found on monthly utility bills). This gives the cost per 100 miles driven, which can then be multiplied by the number of miles driven per month to estimate the increase in the electricity bill.
The most affordable option for charging an electric car is typically at home, with Level 1 EV chargers costing $6-$18 per full charge, depending on rates. Off-peak charging can reduce costs by up to 30%, while public charging typically costs $20-$40 per session, though it is still cheaper than gas in most cases.
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Reimbursement for business miles
If you use your personal vehicle for business-related driving, you can be reimbursed by your employer for your business miles. This reimbursement is also known as a Mileage Allowance Payment (MAP). The allowance covers all regular expenses for owning and maintaining your vehicle for its business usage, including the cost of fuel and the cost of maintenance and repairs. Mileage allowance payments are normally provided on a monthly basis and can be in the form of a per-mile rate or a lump sum for vehicle expenses. Some employers provide a combination of both.
HMRC mileage claim rules for 2025/2026 allow reimbursement for the following vehicles: cars, vans, motorcycles and bicycles. If your employer doesn't reimburse you, you will be eligible for a mileage claim from HMRC for your business miles, also known as Mileage Allowance Relief, as long as you fulfil the requirements of what constitutes business-related driving and keep an HMRC-compliant mileage log.
The Internal Revenue Service (IRS) in the US also allows a deduction based on the mileage used for business, charity, medical or moving purposes.
In the UK, advisory fuel rates are worked out from fuel price tables. From 1 June 2025, the advisory electric rate for fully electric cars will be 7 pence per mile. The advisory fuel rate for fully electric cars rose from 5 pence to 8 pence per mile from 1 December 2022.
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Frequently asked questions
The advisory fuel rate for fully electric cars in the UK is 7 pence per mile as of June 1, 2025. This rate was previously 5 pence per mile before it rose to 8 pence per mile on December 1, 2022.
If you use your personal vehicle for business, you can claim a Mileage Allowance Payment (MAP) from your employer. This is often provided on a monthly basis and can be in the form of a per-mile rate or a lump sum for vehicle expenses. If your employer does not reimburse you, you may be eligible for a mileage claim from HMRC, also known as Mileage Allowance Relief (MAR).
For carrying fellow employees in a personal vehicle on work journeys, the rate is 5 pence per passenger per business mile.
