How Does Mileage Reimbursement Work?

Many employees regularly find themselves on the move, whether it’s visiting clients, attending meetings, or travelling between different offices.

With such mobility comes the inevitable cost of transportation, and for many, mileage reimbursement becomes a vital aspect of their employment benefits.

But how does mileage reimbursement work in the UK, you may ask?

Read on to find out.

What exactly is mileage reimbursement?

Mileage reimbursement is a way to pay back your employees for using their own cars for work. It covers things like fuel, maintenance, insurance, and general wear and tear.

Basically, it’s a way to help with the costs they run up while driving for work.

How does mileage reimbursement work?

In the UK, mileage reimbursement is often based on a predetermined rate per mile travelled. This rate is set by HM Revenue and Customs (HMRC), and it’s designed to cover the average cost of using a personal vehicle, including fuel, maintenance, and depreciation.

The HMRC-approved mileage rates for cars and vans are:

• 55p per mile for the first 10,000 business miles in a tax year

• 25p per mile for each additional mile over 10,000 (rising to 35p from 6 April 2027)

For motorcycles, the rate is 24 pence per mile, and for bicycles, it’s 20 pence per mile.

The 55p rate took effect from 6 April 2026 and was made permanent at the Autumn Budget 2026. The budget also raised the higher-mileage rate to 35p from April 2027. Rates can change, so it’s worth checking HMRC’s guidance at the start of each tax year.

How to calculate mileage reimbursement

To calculate mileage reimbursement, your employees need to multiply the number of miles travelled for work by the applicable rate per mile.

For example, if your employee drives 100 miles for work in a given month, they would be entitled to £55 in reimbursement (100 miles x 55p).

How to reimburse your employees

You can pay back employees either through your payroll system or via direct payments.

When using payroll, you incorporate the mileage reimbursement into the employee’s regular pay cycle, ensuring it is clearly itemised on their payslip.

Direct payments can be made outside of the payroll, typically via bank transfer or a company-issued cheque.

Are there any tax implications?

Mileage reimbursement is typically tax-free, as it’s considered a reimbursement of expenses rather than income. However, there are exceptions, such as when the reimbursement exceeds the HMRC-approved rates or when an employee receives a cash allowance in lieu of reimbursement. In such cases, the excess amount may be subject to income tax and National Insurance contributions.

What responsibilities do you have?

You’re responsible for making sure your mileage reimbursement policies comply with HMRC regulations.

This includes:

• Using the approved mileage rates

• Maintaining accurate records

• Providing clear guidance to your employees

Failure to do so can result in penalties and legal liabilities.

FAQs

Are all UK employees eligible for mileage reimbursement?

Not everyone is eligible for mileage reimbursement in the UK. Generally, you must meet the following criteria:

• You must be using your own vehicle for work-related travel.

• Your employer must require you to travel for business purposes.

• You must keep accurate records of your mileage, including the date, destination, and purpose of each trip.

Employees who are eligible for mileage reimbursement typically include sales representatives, delivery drivers, and those who travel between different work locations as part of their job.

What do UK employees have to do to claim mileage reimbursement?

If you’re eligible for mileage reimbursement, you’ll need to keep detailed records of your business mileage. This includes maintaining a mileage log or using a mileage tracking app to record each journey you make for work purposes. Your mileage log should include the following information:

• Date of the journey

• Starting location and destination

• Purpose of the trip

• Number of miles travelled

Once you’ve accumulated business mileage, you can submit a mileage claim to your employer. This typically involves completing a mileage expense form and attaching your mileage log as evidence. Your employer will then process your claim and reimburse you for the approved mileage.

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