What if I use my own car for business purposes?
In this section, we set out the main rules that apply when you use your own car for business travel. We also consider other costs you may incur when travelling on business.
One of the most common expenses incurred by an employee is travel for business purposes. This may involve you using your own car.
You are entitled to tax relief for travel costs that you are obliged to incur in order to do your job; if your employer does not pay or reimburse these expenses, you may be able to claim a deduction from your income. You will only be able to claim tax back if you are a taxpayer.
You cannot generally claim tax relief for the expense of ordinary commuting – travel between your home and permanent place of work. If your employer pays or reimburses you for the cost of ordinary commuting (or other private travel), this is like having an additional salary paid to you, and your employer must deduct tax and National Insurance contributions (NIC) from the amount paid to you.
You can read more about which travel expenses you may be able to claim tax relief on in our section ‘What travel expenses can I claim?’.
If you use your own car for business travel, there is the statutory system of tax-free approved mileage allowances available.
The maximum amount per business mile is known as the approved mileage allowance payment (AMAP).
Your employer can pay or reimburse you up to these amounts on a tax- and NIC-free basis. If your employer pays less than these amounts, you can claim tax relief for the unused balance of the approved amount.
The approved mileage allowance payment (AMAP) rates are:
|First 10,000 business miles in the year||Each business mile over 10,000 miles in the tax year|
|Cars and vans||45p||25p|
If you have more than one job and your employers are not connected with each other, that is, the same people do not control each business, you can have a 10,000 mile limit for each job you hold.
If you have more than one job and your employers are connected with each other, you have only one 10,000 mile limit to be divided between all affected jobs.
The mileage rate covers the costs of running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle.
If your employer pays you more than the AMAP rate, this is considered a ‘benefit’ and you have to pay tax on the excess –see our section ‘How is my tax collected?’ for more information.
Your employer must also work out whether you have to pay any extra NIC and if you do, they will take this out of your wages via the payroll.
If your employer pays you less than the AMAP rate, you can get tax relief against your earnings for the difference, assuming you earn enough to pay income tax.
This relief is called mileage allowance relief (MAR). To make a claim you need to keep a record of your business miles and any mileage allowance payments made to you by your employer.
If you travel 10 business miles and your employer reimburses you nothing, you can claim £4.50 of tax relief (10 miles at 45p). If you normally pay tax at 20%, this means you get 90p of tax relief (£4.50 at 20%).
If you pay tax at the 40% rate, you get £1.80 of tax relief (£4.50 at 40%).
However, if your total earnings are less than the personal allowance and you do not pay any tax, you cannot get any tax relief.
If you travel 50 miles per day, but your employer only reimburses you for 18 miles per day, you can claim tax relief in respect of 32 miles per day. If your employer reimburses you less than the 45p/25p per mile amounts in respect of the 18 miles, it is also possible to claim additional tax relief for the difference.
So, say you have travelled 4,160 unreimbursed miles in the tax year (32 miles a day, 5 days a week for six months), the amount of your tax relief claim will be 4,160 x 45p = £1,872. In addition, if you have only been paid 30p per mile (say) towards 18 business miles per day by your employer, you can also claim the difference of £351 (18 miles a day, 5 days a week for six months x 15p). Your total claim will be £2,223.
If your employer pays you for taking a passenger, up to 5p per mile may be paid to you on a tax- and NIC-free basis; anything over an allowance of 5p per mile is taxable and NIC-able. The passenger must also be an employee and the journey must be for business
Unlike AMAP, if your employer pays you less than 5p per mile to carry a passenger, you cannot claim any tax relief on the difference.
You need to:
- Work out your business mileage for the tax year;
- Multiply your business miles by the AMAP rate to give you the total approved payment;
- Add up the mileage allowance reimbursements (if any) you got in the tax year from your employer;
- If you had excess mileage allowance reimbursements from your employer you have to pay tax on the extra, or if they were less than the total approved payment you can claim mileage allowance relief.
You can check to see if any NIC is due, by taking the following steps:
- Work out your business mileage for the tax year;
- Multiply your business miles by the AMAP rate to calculate the total approved payment;
- Add up any mileage allowance reimbursements paid to you by your employer in the tax year;
- If your employer paid more mileage allowance reimbursements to you than your business mileage at the AMAP rate, you have to pay NIC on the difference. Your employer should make an adjustment in the payroll and collect the NIC due from your wages.
You can see how this works in the example Janice.
You may incur other business travel expenses, such as travel fares, meals or overnight accommodation (known as subsistence), parking charges, congestion charges and road tolls.
Provided these relate to business journeys, if your employer pays for any of these directly, or you pay them and get reimbursed, since 6 April 2016, this will not be treated as a taxable benefit on you. Before 6 April 2016, unless your employer had a special arrangement with HM Revenue & Customs (HMRC), you would have received a form P11D at the end of the tax year, summarising the amount involved. You would then need to make a claim for tax relief to cancel out the tax liability that arose on the expenses. We explain more about this in our section ‘What if I incur expenses in relation to my job?’.
If your employer does not repay you in full for such business travel expenses, you can deduct the difference from your earnings and claim tax relief.
If you get a round sum travel allowance, in the first instance, you are likely to pay tax and NIC on the allowance, but you can claim tax relief to the extent that you use the allowance for business travel expenses.
Personal incidental expenses
Employees who stay away overnight while travelling on business are entitled to tax-free reimbursement of up to £5 per night in recognition of their personal incidental expenses. This covers items like private telephone calls, laundry and newspapers. If your employer pays this, tax relief happens automatically and you do not have to claim it.
The rules do not permit a deduction for incidental expenses incurred by the employee that are not reimbursed by the employer.
Provided certain conditions are met, subsistence can be reimbursed by employers by means of a scale rate payment rather than on the basis of the actual expenditure incurred by employees in performing their duties. For example, rather than reimbursing an employee £2.59 for a sandwich and £1.99 for a coffee, to keep things simple employers may just pay a round sum amount of £5. Employers are free to come to a specific agreement with HMRC as to the rates. Otherwise HMRC have benchmark scale rates which all employers can use.
You can find out more about these in HMRC’s Employment Income Manual on GOV.UK.
Employers can pay less than the published rates. If an employer pays less than the published rates, employees cannot claim tax relief on the difference, but if they spend more on subsistence expenses than the amount that is reimbursed they can still claim a deduction from HMRC for the difference between what they actually spent on the expense and the amount reimbursed by their employer in the normal manner, subject to their having retained appropriate evidence.
For travel in your own car, you should keep a log of business travel to include dates, destination, purpose of trip and how many business miles you travelled – this may involve you setting your mileage counter each journey and keeping a record.
For other business travel costs that you have to pay, you should keep a note of dates and trip details, and keep all receipts, for example, receipts for taxi or train fares, as proof of payments you have made, including credit card statements.
If you do not get a receipt, make a note of who you paid, what you spent and the date.
Ravi uses his own car for business travel. In the tax year 2018/19 he travelled 12,000 miles on business. His employer pays him 45p per mile for all business mileage.
Ravi's business mileage was 12,000 miles
The AMAP rate for a car for the first 10,000 miles is 45p per mile and 25p per mile after that. Using that rate Ravi would have been paid 10,000 x 45p = £4,500 plus 2,000 x 25p = £500. Total £5,000 (a)
Ravi was actually paid 45p per mile so his total allowance from his employer was 12,000 x 45p = £5,400 (b)
The difference between (a) and (b) is £400. Ravi has to pay tax on his profit of £400. It will go on a form P11D and most likely, Ravi will pay tax on it by having his PAYE tax code adjusted. Strictly Ravi should also pay NIC on this profit. See example Janice below.
Jock uses his own car for business travel. In the tax year 2018/19 he travelled 6,000 miles on business. His employer pays him 25p per mile for all business mileage.
Jock's business mileage was 6,000 miles
The AMAP rate for a car for the first 10,000 miles is 45p per mile. Using that rate Jock would have been paid 6,000 x 45p = £2,700 (a)
Jock was actually paid 25p per mile so his total allowance from his employer was 6000 x 25p = £1,500 (b)
The difference between (a) and (b) is £1,200. Jock can claim MAR on £1,200.
If Jock is a basic rate taxpayer, this will save him £240 in tax.
Janice uses her own car for business travel. In the tax year 2018/19 she travelled 5,000 miles on business. Her employer pays Janice 50p per mile for all business mileage.
Janice's business mileage was 5,000 miles
The AMAP rate for a car for the first 10,000 miles is 45p per mile. Using that rate Janice would have been paid 5,000 x 45p = £2,250 (a)
Janice was actually paid 50p per mile so her total allowance from her employer was 5000 x 50p = £2,500 (b)
The difference was £250. Janice has to pay NIC on £250. Her employer will make an adjustment in the payroll to collect it. Note that she will also have to pay tax on £250.
If Janice’s employer only pays her 30p per mile, as that is less than the AMAP rate, Janice does not need to pay any extra NIC in fact she could claim further tax relief as shown in example Jock above.
There is more information about tax relief for business mileage on the GOV.UK website.
You can find more information about tax relief for business travel and subsistence on GOV.UK website.
You may find the A to Z list of expenses and benefits on the GOV.UK website helpful. Although this is aimed at employers, it will also be useful to employees.
You can find more information on how to claim tax relief for travel expenses in the section of our website 'How do I claim a refund if I have spent my own money on employment expenses?'.
HMRC's Employment Income Manual contains technical details of the MAR system.
Some workers use their own cars for significant business travel and thus incur significant mileage expenses, for example care workers. There may be minimum wage or tax credit/universal credit interactions. You can read about some specific considerations for such workers in our dedicated section.