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A Quick Guide: Tax-Free Mileage Rates

Updated: Oct 16, 2023


Wondering about the right tax-free mileage payments for your employees? Here’s a simplified guide to ensure you’re on the right track!


For Employees Using Personal Cars: If your employees use their cars for business travels, you can offer mileage payments tax-free up to an approved amount by HMRC. It's 45p per mile for the first 10,000 business miles and 25p per mile thereafter. So, if an employee travels 12,000 business miles in a tax year, you can offer up to £5,000 tax-free!




Remember:

  • If your payments are below the approved amount, employees can claim a tax deduction for the difference!

  • For motorbikes and bicycles, the tax-free rates are 24p and 20p per mile, respectively.

  • The 45p rate is also NIC-free for National Insurance purposes.



For Employees with Company Cars: If your employees have a company car and cover their fuel costs, the tax-free mileage payments are a bit different and usually lower. HMRC sets advisory fuel rates every quarter, varying for diesel, petrol, and LPG cars, and depending on the car’s engine size.


From 1st September 2023, the rates are:

  • Petrol Cars (1,400cc or less): 13p per mile

  • Diesel Cars (1,600cc or less): 12p per mile

  • Electric Cars: 10p per mile

Keep an eye on the changes every quarter to stay compliant and ensure your employees avoid any unwelcome tax surprises!


Note: This guide aims to provide a simplified overview, and for detailed guidance and advice tailored to your specific circumstances, referring to the official legislation (ITEPA 2003, ss. 229 – 232) and consulting a tax professional or visiting www.gov.uk/guidance/advisory-fuel-rates is recommended.

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