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How Does Mileage Reimbursement Work? 

Many employees regularly find themselves on the move, whether it’s visiting clients, attending meetings, or simply commuting to 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 are as follows:

  • 45 pence per mile for the first 10,000 miles in a tax year 
  • 25 pence per mile for each additional mile over 10,000

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

These rates are subject to change, so it’s essential that you keep up with the latest guidance from HMRC.

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 £45 in reimbursement (100 miles x 0.45 pence). 

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 have a responsibility to ensure that 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. 


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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