Mileage allowance relief: how employees claim it

The approved mileage rate for cars and vans rose from 45p to 55p a mile for the first 10,000 business miles from 6 April 2026, and the same rate now sets the ceiling for mileage allowance relief ^{[1] [2]}. An employee whose employer pays less than that rate, or nothing at all, can claim relief on the shortfall for the current tax year and the four previous tax years ^[1].

Mileage allowance relief (MAR) is the statutory deduction that balances the tax-free approved mileage allowance payments employers can make. The two mechanisms use the same rates and the same calculation, so an employee either receives the full approved amount tax-free from the employer or claims the gap back from HMRC ^{[3] [4]}.

The relief is often misunderstood. It is not a cash refund of the shortfall, it gives nothing back on National Insurance, and since 14 October 2024 HMRC has required evidence before it processes a PAYE expenses claim ^{[5] [6]}.

This guide sets out who qualifies, how the relief is calculated, which claim route applies, what evidence HMRC expects, how the relief reaches the employee through the tax code, and what employers and payroll teams can do to make the process smoother.

Key takeaways

• Mileage allowance relief covers the difference between the approved amount (business miles multiplied by the statutory rate) and any mileage allowance the employer paid ^{[4] [1]}.
• For cars and vans the rate is 55p a mile for the first 10,000 business miles and 25p after that from 6 April 2026; motorcycles stay at 24p and bicycles at 20p ^[2].
• The relief reduces taxable income, so its value depends on the employee's marginal rate of income tax, and it never reduces National Insurance ^{[6] [7]}.
• Claims of £2,500 or less a year can be made online or on form P87 with a mileage log; larger claims require a Self Assessment return ^[8].
• Company cars, ordinary commuting and travel to work-related training never qualify ^{[9] [10]}.

What mileage allowance relief is

Mileage allowance relief is set out in section 231 of the Income Tax (Earnings and Pensions) Act 2003 ^[11]. It sits inside a wider statutory scheme, sections 229 to 236 of the same Act, which deals with mileage allowance payments, approved mileage allowance payments (AMAPs), MAR and passenger payments ^[12].

Where the relief fits in the AMAP scheme

HMRC's Employment Income Manual describes MAR as a statutory deduction for employees who use their own car, van, motorcycle or cycle for business travel and receive less in mileage allowance payments than the approved amount ^{[12] [3]}. The same calculation decides both the taxable excess when an employer overpays and the relief when an employer underpays ^[3].

It follows that an employee cannot be taxed on excess mileage payments and claim MAR in the same tax year for the same kind of vehicle ^[3]. The result of the calculation is either positive (a taxable excess the employer reports) or negative (relief the employee claims), never both ^[4].

A flat-rate deduction, not actual costs

MAR is the only relief available for the running costs of an employee's own vehicle on business journeys. HMRC states that nothing more, such as capital allowances, insurance, breakdown cover, repairs or loan interest, can be claimed, however high the employee's real costs are ^[13]. GOV.UK confirms that fuel, electricity, vehicle tax, MOTs and repairs cannot be claimed separately ^[1].

The flip side is that an employee whose actual costs are lower than the approved amount is not taxed on the difference ^[13]. Costs specific to a journey, such as parking, tolls and overnight accommodation, sit outside the scheme and follow the general expenses rules ^{[13] [14]}.

Who can claim mileage allowance relief

Entitlement rests on three tests: the vehicle must be the employee's own, the journey must be business travel, and the mileage allowance received must be below the approved amount ^[3]. The table summarises the position for the most common situations, using HMRC's manual ^{[9] [10]}.

Own vehicles and company vehicles

The scheme covers cars, vans, motorcycles and cycles, but sections 229(4) and 231(3) prevent both the AMAP exemption and MAR from applying to a company vehicle ^{[9] [11]}. A vehicle counts as a company vehicle if it attracts a car, van or general benefit charge, is made available only for business use, or falls under the pooled car and van rules ^[9].

Company car drivers are not left without relief altogether. GOV.UK states that an employee can claim relief on money spent on fuel or electricity for business trips in a company car, net of any reimbursement, provided records show the actual cost ^[1]. That claim is based on actual fuel cost, not on the mileage rates, and the employer side of company car fuel is covered in the guide to advisory fuel rates ^[14].

What counts as business travel

The MAR legislation borrows the meaning of business travel from the travel expenses rules in sections 337 to 342 of the 2003 Act ^[15]. Journeys between home and a permanent workplace are ordinary commuting and never qualify; journeys to a temporary workplace, attended for a task of limited duration or a temporary purpose, do ^[16].

A workplace stops being temporary when the employee attends it during a period of continuous work that lasts, or is likely to last, more than 24 months. HMRC treats work as continuous at a location where the employee spends 40% or more of working time ^[17]. Travel to work-related training is a separate exclusion: it is not performed in the duties of the employment, so no MAR is due on it ^[10].

When the employee chose to drive

HMRC does not require the employee to have been obliged to use a personal vehicle. If the employee was obliged to make the journey and it is business travel, the means of transport does not matter, and the actual miles count towards MAR ^[18]. The manual gives the example of an employee who could have used employer-provided transport but drove instead ^[18].

The relief is restricted only by mileage allowance actually received. HMRC's guidance addresses the case where an allowance was available but not claimed, and the deciding figure remains the amount the employee received ^{[18] [4]}.

How mileage allowance relief is calculated

HMRC uses a three-step calculation for each kind of vehicle: total the mileage allowance payments received in the tax year, deduct the approved amount, then read the sign of the answer ^[4]. A negative answer is the relief due; a positive one is a taxable excess that the employer reports on form P11D ^{[4] [14]}.

The statutory rates

The approved amount is business miles multiplied by the rate for the kind of vehicle ^[19]. The rates below are those published for the 2026-27 tax year ^{[2] [1]}.

The increase was announced on 21 May 2026 and backdated to the start of the tax year, so it applies to business journeys across the whole 2026-27 tax year, both for AMAPs and for MAR ^{[20] [21]}. The employer's side of the same rates, including the National Insurance scheme, is covered in the Moonworkers guide to HMRC mileage rates.

Three common payment patterns

The table applies the three-step method to three employees with own cars in the 2026-27 tax year, following the structure of HMRC's own examples ^{[22] [23]}.

The third pattern matters because a lump sum counts as a mileage allowance payment only when it is calculated to cover the business share of the car's standing costs. A payment made because the employee no longer has a company car is ordinary earnings, not part of the calculation ^{[23] [24]}.

More than one vehicle or employment

Vehicles of the same kind are merged: an employee who swaps cars mid-year has one 10,000-mile limit per employment, not one per car ^[25]. Different kinds of vehicle are calculated separately, so a taxable excess on a bicycle allowance and MAR on a car can arise in the same year ^[26].

Separate employments each carry their own 10,000-mile limit, unless the employments are associated, for example two companies in the same group. Mileage from associated employments is added together before the 10,000-mile boundary is applied ^{[27] [25]}.

What the relief is worth in practice

MAR is a deduction from taxable employment income. GOV.UK is explicit that relief is given at the rate at which the employee pays income tax, and that the relief cannot exceed the tax paid in that year ^[7]. A shortfall of £1,000 is therefore worth £200 to a basic-rate taxpayer, not £1,000 ^{[7] [20]}.

Worked example through the tax code

An employee drives 6,000 business miles in an own car and receives 35p a mile, £2,100, against an approved amount of £3,300. The MAR claim is £1,200 ^{[4] [1]}. For a current-year claim HMRC usually adjusts the tax code, and a £1,200 deduction lifts a 1257L code to 1377L ^[7].

The table shows the effect for two salaries in England, computed with the Moonworkers calculation engine on the 2026-27 rates ^[6].

Why National Insurance does not change

The National Insurance scheme has its own qualifying amount per earnings period, at 55p for every business mile in a car or van, with no step-down after 10,000 miles ^[6]. GOV.UK states there is no Mileage Allowance Relief for National Insurance, and any unused qualifying amount cannot be carried forward to a later period ^[6].

That asymmetry explains the identical employee National Insurance figures in the table above. An employer that wants its staff to benefit on both taxes has to pay the allowance itself; a claim to HMRC can only ever recover income tax ^{[20] [6]}.

Passengers carry no relief

Employers can pay up to 5p per passenger per business mile tax-free when an employee carries colleagues on a business journey ^[28]. That rule is an exemption only: HMRC confirms there is no equivalent of MAR when the employer pays less than 5p or nothing at all ^{[29] [28]}.

How to claim mileage allowance relief

The claim route depends on the size of the claim and on whether the employee already files a Self Assessment return. The table sets out the options described on GOV.UK ^{[8] [7]}.

The online service and form P87

A postal claim must be made on form P87, within four years of the end of the tax year concerned, for expenses of £2,500 or less per tax year, and only where the employee paid tax in that year ^[8]. HMRC rejects postal claims that do not use the form ^[8].

Since 23 December 2024 the same claim, with its evidence, can be submitted through an online form, which HMRC describes as the route it directs employees towards ^[5]. For a current-year claim HMRC usually adjusts the tax code; for earlier years it either adjusts the code or makes a repayment ^[7].

Claims above £2,500 and Self Assessment

Where expenses exceed £2,500 in a tax year, the employee must claim through a Self Assessment return ^[8]. Anyone who has not filed a return before must register by 5 October following the end of the tax year, and an employee who already files must claim on the return rather than separately ^{[30] [1]}.

The £2,500 limit is easier to reach than it looks under the new rate. An employee driving 5,000 business miles with no reimbursement has an approved amount of £2,750, which is above the limit for a PAYE claim ^{[8] [2]}. Registration is covered by GOV.UK's Self Assessment registration service ^[30].

The evidence HMRC expects

From 14 October 2024 HMRC has required employees making a PAYE expenses claim to provide evidence of eligibility before the claim is progressed ^[5]. For vehicle claims, the mileage log must show the reason for every journey and the postcodes of its start and end points, with a separate log for each employment ^{[8] [1]}.

HMRC also says an employee who estimates expenses must tell it if the actual figure turns out to be different at the end of the tax year ^[7]. For mileage, a log kept journey by journey avoids the problem, since the approved amount depends on actual business miles in the tax year, not on mileage claimed during it ^[19].

Repayment agents and assignments

HMRC's most recent figures show an average work expenses claim of £125, and it warns that some repayment agents charge up to 50% of the value of a claim ^[31]. If a claim is later found ineligible, the employee must repay the full refund, not just the share received ^[32].

HMRC distinguishes a nomination, which the employee can withdraw, from a letter of assignment, which makes the agent legally entitled to the repayment and can only be cancelled with both parties' agreement ^[33]. Employees who use an agent should confirm which document they are signing ^{[33] [31]}.

The employer's role

MAR is the employee's claim, but the employer's mileage policy determines whether a claim exists at all. When mileage payments stay within the approved amount the employer reports nothing, though it must still keep records of the payments and the business journeys they relate to ^{[34] [35]}.

Reporting shortfalls through MARORS

Employers can make optional reports of unused balances to HMRC through the Mileage Allowance Relief Optional Reporting Scheme (MARORS), which only covers negative amounts ^{[35] [14]}. Joining requires contacting HMRC. For employers paying a flat rate below 55p to many drivers, the scheme saves each employee from filing a separate claim ^[35].

Topping up April and May payments

Employers that reimbursed journeys since 6 April 2026 at 45p can pay the shortfall up to 55p without income tax or National Insurance becoming due ^[20]. Employers that paid above 45p and deducted tax and National Insurance on the excess in April and May may need to correct those payroll runs ^{[21] [20]}.

Where the employer does neither, employees fall back on MAR for the gap between 45p and 55p ^[20]. A top-up is worth more to the employee than the relief, because it arrives in full and free of both taxes, whereas MAR returns only the income tax share ^{[6] [7]}.

Payroll and expenses data

The split between tax-free mileage, taxable excess, NIC-able excess and MAR-eligible shortfall depends on mileage data that often lives in an expenses tool, not in payroll. HMRC-recognised UK payroll software handles the Class 1 side, adding any excess over the per-period qualifying amount to earnings for National Insurance ^[6].

Platforms that hold expenses and HR data can pass approved mileage directly to a UK payroll engine through its API, so the per-period National Insurance test and the annual income tax test run on the same mileage figures ^{[6] [35]}. Accountants running several client schemes from a multi-client payroll dashboard can apply one mileage policy across employers and flag clients still paying 45p. Any excess reported at year end goes on the P11D form or through payrolled benefits ^{[14] [34]}.

Confirm the tax code after a claim

A successful current-year claim usually reaches the employee as a higher tax code. Payroll teams receiving the updated code from HMRC can confirm what it means with the Moonworkers tax code checker, which decodes the allowance behind any code before it is applied in the next pay run.

Conclusion

Mileage allowance relief is the mirror image of the tax-free mileage allowance. The approved amount sets one line: an employer that pays above it creates a taxable excess, and an employer that pays below it leaves the employee with a relief to claim. With the car rate at 55p for the first 10,000 business miles, far more employers sit below that line than before, and many employees who never thought about MAR now have a claim.

The practical effect is a shift of administrative weight. Employers that align their reimbursement with the approved rates remove the need for claims, logs sent to HMRC and tax code changes. Those that keep a lower flat rate can lighten the load through MARORS. As mileage data flows more directly from expenses systems into payroll, the calculation that decides between excess, exemption and relief is likely to move from the employee's tax return into the payroll run itself.

Frequently asked questions

Can mileage allowance relief be claimed for previous years?

Yes. An employee can claim for the current tax year and the four previous tax years, provided the mileage was business travel in an own vehicle and the employer paid less than the approved amount ^[1]. Each year is calculated at the rates that applied in that year, so journeys before 6 April 2026 use 45p for the first 10,000 miles ^[2]. Relief for earlier years is usually paid as a refund.

Does mileage allowance relief apply to the commute to work?

No. Travel between home and a permanent workplace is ordinary commuting and does not qualify ^[1]. Journeys to a temporary workplace do qualify, until the employee has spent, or expects to spend, 40% or more of working time there over a period of more than 24 months ^[17].

Can an employee claim actual fuel costs instead of the mileage rate?

Not for an own vehicle. The approved mileage rates are the only relief, and fuel, insurance, repairs and other running costs cannot be claimed on top or instead ^[13]. The actual-cost route exists only for fuel or electricity bought for business trips in a company car ^[1].

Is mileage allowance relief paid as cash?

The relief reduces taxable income rather than reimbursing the shortfall. For the current year it normally arrives as a higher tax code and lower tax deductions through payroll, and for past years as a repayment ^[7]. The value is the shortfall multiplied by the employee's income tax rate, so a £1,000 shortfall is worth £200 to a basic-rate taxpayer ^[7].