Whether your employees are using a company car or a personal car (grey fleet) for business mileage purposes, the mileage rates will differ. The reimbursement amount takes into consideration different reclaim factors such as fuel, wear and tear and on-road expenses.

Company Cars vs. Personal Cars

When using a personal car, the traditional HMRC Approved Mileage Allowance Payments (AMAP) rate of 45p per mile (25p per mile for >10,000 miles per annum) is applied, which considers maintenance costs for the employee’s vehicle.

When using company cars, however, only the fuel expense for business mileage is reimbursed. In this case, the HMRC Advisory Fuel Rates (AFR) are applied and dependent on the engine size. They range from 8p to 22p per mile.

Often the employee will have to pay for the fuel themselves, and then submit a mileage reclaim for the reimbursement. Or a fuel card provider would be used. In this case, the business would then need to distinguish between personal vs. business mileage.

Company Cars

The Advisory Fuel Rates (AFR) per mile from 1st December 2018 are:

When using a fully electric car, the Advisory Electricity Rate (AER) is 4p per mile. These rates were first introduced on 1st September 2018, which you can read more about on our blog post mileage rates for electric cars.

Please note:

• The company car mileage rates (AFR and AER) are guidelines for the reimbursable amount only.
• Consider hybrid cars under petrol or diesel in these cases
• Electricity is not a fuel for car fuel benefit purposes.

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The AFR are only set by the government as guidelines. Businesses can adopt their individual company car mileage rates based on their own circumstances. However, in most instances companies follow the guidelines to make sure to cover costs and that reimbursements are fair. 

Present fuel costs (oil prices) determine HMRC rates and therefore will change in the same direction depending on global fuel pricing.

Also considered is applied MPG (miles per gallon) which incorporate differences in road conditions, seasonal factors and vehicle efficiencies. This is becoming a more relevant factor due to technological advancement.

The rates are revised quarterly in March, June, September, and December depending on the factors mentioned.

Personal Cars

If you were to use your own personal car, the AMAP rates are the following:

Please note: the 10,000 miles need to be driven within the same tax year

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These figures are higher compared to company car mileage rates, as they take into account the use of your own car for business purposes and overall running costs, such as insurance and ongoing maintenance.

If you have to take a lot of business trips and carry out a lot of business mileage, this can add strain to your car over the years, which this reimbursement per mile adequately compensates for.

Company Car Reimbursement Options

There are three ways to reimburse an employee:

• They first pay for the fuel and claim back at an approved company car mileage rate.
• The company pays for the fuel (usually via fuel card), and the employee claims back on total personal mileage.
• They can pay extra income tax and national insurance to use the company car for both business and personal miles. This benefits those who do a lot of personal travel on the side. 

When Implementing a Mileage Claim Policy for Company Cars, it’s Important to Remember:

• It is the responsibility of both the business and employee to keep track of their miles and report them accurately. This is an area often overlooked, particularly for those claiming back private mileage as these are usually not accounted for.
• If employees pay for their own fuel for reimbursement, they will have to keep hold of their receipts. This enables the company to be able to claim back on the VAT. Without the receipts, the VAT entitlement for the business is not claimable.
• Employees can claim tax relief if employers underpay their mileage reimbursements. HMRC mileage rates are guidelines only; the business sets their company car mileage rates. If the company pays the employer less than the advisory amount, then it is not considered a taxable benefit and the employee is exempt from National Insurance on the difference.
• The company is only obliged to pay the cost of the fuel per mile, as deduced from fuel receipts, and this will be particularly apparent if the company own an efficient fleet. In this case, the exemption still applies, and employees can claim the difference between the company car mileage rate and the AFR dictated by HMRC. The same applies if the company pays you a higher rate than the AFR, you will have to pay tax on the difference.

What We Recommend:

A convenient way for employees to calculate their mileage is by automating the recording of their mileage. To see why check out what we do at Autotrip.

It’s also beneficial to track your working hours too. It’ll help understand your company’s productivity and profitability – read more about why with Zervant.

Manual methods are still common within many companies, but this adds strain on accuracy. This put the business at risk of an HMRC penalty because many find it is easy to overestimate/underestimate when it comes to differentiating between business and private trips. 

*This post was originally published in January 2017 and has been updated with the current AFR rates.