HMRC mileage allowance explained: 45p, 25p and what counts as a business mile

If you use your own car for work, HMRC lets you claim a fixed amount per mile instead of adding up fuel, insurance, tyres and servicing. It is the simplest expense there is, and it is also the one most often left unclaimed because no receipt ever arrives to remind you. Here is how it works. General information, not tax advice: the current rates and the rules are on gov.uk.

The rates

These are HMRC's approved mileage allowance payments, and they have been the same for years:

Plus 5p per passenger per mile when you carry a colleague on the same business journey (cars and vans only).

The 10,000 miles is per tax year (6 April to 5 April), across all your business driving, not per employer or per vehicle. So 12,000 business miles in a year is 10,000 × 45p + 2,000 × 25p = £5,000, not 12,000 × 45p.

Employee, or self-employed? The rules differ slightly

Employees. Your employer can pay you up to the approved rate tax-free. If they pay less, or nothing, you can claim tax relief on the difference from HMRC (through self assessment, or a P87 form if you do not file a return). If they pay more than the approved rate, the excess is taxable. Note that the relief is on the amount, so at 20% tax a 45p mile your employer did not pay is worth 9p back to you, not 45p.

Self-employed. You have a choice for each vehicle. Either use these flat rates as your motoring expense (HMRC calls it simplified expenses), or claim the actual costs of running the vehicle in proportion to business use, plus capital allowances. You cannot switch methods for a vehicle once you have picked one, so choose carefully when you first use it for the business. For most people with an ordinary car and a mix of use, the flat rate is easier and often not far off the actual figure.

Company cars are different again: the mileage rates above do not apply, and fuel is reimbursed at HMRC's separate advisory fuel rates.

What counts as a business mile

This is where most disputes with HMRC happen, so it is worth being clear.

Counts:

• Travel between your workplace and a customer, supplier or site
• Travel between two workplaces of the same job
• Travel to a temporary workplace (broadly, one you expect to be at for less than 24 months)
• For someone who works from home as their base, journeys from home to customers

Does not count:

• Ordinary commuting: home to your permanent workplace and back, however far it is
• Private journeys with a business errand tacked on, beyond the extra miles the errand added
• Travel while you are not working, even in a vehicle used for the business

If a journey starts at home and goes to a customer, the whole journey usually counts if home is your base or the customer is a temporary workplace. If you stop at your normal office first, only the office-to-customer leg does.

The record you need

HMRC expects a log for each business journey. Without it, a claim can be refused entirely. Keep it simple, and keep it at the time rather than reconstructing it in April:

A notebook in the glove box, a spreadsheet, or a phone app all satisfy it. Round trips can be one line. Keep the log for at least five years after the tax return it supports.

Working it out over the year

Because of the 10,000-mile step, the claim for a month depends on how many business miles you have already done that tax year. Keep a running total, and work out each month's claim from where the total stood. A calculator that takes the year-to-date figure removes the arithmetic; a tracker that logs every journey removes the arithmetic and the log in one go.

Common mistakes

• Claiming the commute. It is the first thing HMRC looks at.
• Resetting the 10,000 miles per employer or per vehicle. It is per person, per tax year.
• Forgetting passengers. 5p a mile per colleague adds up on regular site trips.
• No log. A bank statement showing fuel is not evidence of business miles.
• Claiming fuel receipts as well as mileage. The flat rate replaces all the vehicle's running costs. You cannot have both.