What is maximum tax-free amount on mileage allowance

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3 November 2022

The maximum amount that can be paid tax-free to employees using their own car for work is the approved amount.

advice : Tax
Mileage allowance

Employers can pay employees a mileage allowance if they use their own car for business journeys. Recently, the government have confirmed the maximum tax-free amount on mileage allowance.

Mileage allowance payments

The approved mileage allowance payments system is a simplified system that allows employers to pay tax-free mileage allowance to employees who use their cars for business travel. Under this system, payments can be made tax-free up to the ‘approved amount’. 

The approved amount

The approved amount for tax is calculated for the tax year as a whole and is simply the reimbursed business mileage for the tax year multiplied by the tax-free mileage rates for the type of vehicle used by the employee. Rates below are set for cars and vans, motor cycles and cycles and haven’t been changed since 2011/12. 

Example

Joe uses his own car for business and drives 12,350 miles in the tax year. The approved amount is £5,087.50 (10,000 miles @ 45p per mile + 2,350 miles @ 25p per mile).

Any payments made in excess of the approved amount are taxable and must be reported to HMRC on the employee’s P11D. If, on the other hand, the employer does not pay a mileage allowance or pays less than the approved amount, then the employee can claim a deduction for the difference between the approved amount and the amount actually paid, if any.

Maximum tax-free amount

The maximum amount that can be paid tax-free to employees using their own car for work is the approved amount, regardless of the car that they drive or the actual costs incurred. However, if the employer wishes to pay more, car sharing could be encouraged and the employer could also pay passenger payments (of 5 pence per mile) for each colleague that the driver gives a lift to (providing the journey is also a business journey for them).

For company car drivers, the maximum tax-free amount that can be paid is governed by the prevailing advisory fuel rates published by HMRC.

For more information please visit the official government website here.

The information available on this page is of a general nature and is not intended to provide specific advice to any individuals or entities. We work hard to ensure this information is accurate at the time of publishing, although there is no guarantee that such information is accurate at the time you read this. We recommend individuals and companies seek professional advice on their circumstances and matters.