The car allowance system in the United Kingdom provides employees with a tax-efficient way to recover the costs of using their personal vehicles for business travel. Whether you are a commuter who travels to multiple work sites or an employee who occasionally drives for work purposes, understanding HMRC's approved rates can save you hundreds of pounds in tax each year. The Approved Mileage Allowance Payment rates are set by HMRC and represent the maximum amount employers can pay employees without triggering a tax liability on the employee side.

HMRC AMAP Rates for 2026

The Approved Mileage Allowance Payment rates have remained stable for several years, providing certainty for both employers and employees when planning their vehicle-related expenses. The current AMAP rates allow employers to pay up to 45 pence per mile for the first 10,000 miles travelled on business in a tax year, and 25 pence per mile for any additional business miles beyond that threshold. These rates are designed to cover all vehicle operating costs, including fuel, tyres, maintenance, insurance, road tax, and depreciation.

Employees who receive exactly the AMAP rate for their business miles do not need to pay any tax on this income, nor can they claim any additional tax relief. If an employer pays less than the AMAP rate, employees can claim tax relief on the difference through their Self Assessment tax return. This flexibility ensures that employees are not financially disadvantaged when their employer chooses to pay below the maximum approved rate.

Advisory Fuel Rates for Employers

While AMAP rates are used to reimburse employees for using their personal vehicles, advisory fuel rates serve a different purpose. These rates are published by HMRC quarterly and represent the fuel costs per mile for different types of vehicles. Advisory fuel rates are primarily used when employers provide company vehicles with fuel cards for private use, or when reimbursing employees for fuel costs in company vehicles.

For 2026, the advisory fuel rates are set at 13 pence per mile for petrol and diesel vehicles, as well as hybrids. Electric vehicles have a lower advisory fuel rate of 9 pence per mile, reflecting their improved efficiency and lower running costs. These rates apply to the engine size category of 1400cc to 2000cc, with slightly different rates for smaller and larger vehicles.

Employer National Insurance Contributions Rules

Understanding the National Insurance Contributions implications of car allowance payments is essential for both compliance and cost management. Payments made at or below the AMAP rate are generally not subject to employer NICs, making them a cost-effective way for employers to reimburse employees for business travel. This exemption applies regardless of the employee's job role or the type of vehicle they drive.

However, if an employer pays more than the AMAP rate, the excess amount becomes subject to employer NICs at 13.8 percent of the excess. Similarly, if the payment is not structured as a mileage allowance but rather as a general car allowance or cash benefit, it would be treated as earnings and subject to full NICs along with Income Tax under the PAYE system. Employers should carefully distinguish between qualifying mileage payments and other types of vehicle-related payments.

Capital Contributions: The £5,000 Threshold

For employees who use their own vehicle and contribute towards its purchase price, there is a valuable tax exemption for capital contributions up to £5,000. If an employee makes a capital contribution towards the cost of a company car, this amount is excluded from their taxable benefits calculation. This provision can significantly reduce the tax liability for employees who have any say in their company car selection.

The capital contribution exemption means that employees can contribute up to £5,000 towards a company car without that contribution being treated as additional taxable income. This is particularly beneficial for employees who want a higher-specification vehicle than their company would normally provide. The contribution reduces the taxable value of the car benefit, resulting in lower Income Tax and NICs for both employee and employer.

AMAP vs Advisory Fuel Rates: Understanding the Difference

The distinction between AMAP and advisory fuel rates causes confusion for many employers and employees, but understanding this difference is crucial for proper tax treatment. AMAP rates are the maximum tax-free mileage payments that employees can receive from their employer for using their own vehicle on business journeys. These rates cover all costs associated with vehicle operation, including fuel, which is why employees receiving AMAP payments do not receive additional fuel reimbursements.

Advisory fuel rates, on the other hand, are used in different scenarios. They apply when employers provide company cars and want to either charge employees for private fuel or reimburse employees for business fuel in those company vehicles. Advisory fuel rates represent just the fuel component of vehicle running costs, not the full cost per mile. Employers using advisory fuel rates for company car fuel calculations must ensure they are applying the correct rates for the vehicle's fuel type and engine size.

Worked Example: 15,000 Miles Per Year

Consider an employee who drives 15,000 business miles per year and receives the full AMAP rate from their employer. For the first 10,000 miles at 45 pence per mile, the employee receives £4,500 tax-free. For the remaining 5,000 miles at 25 pence per mile, the employee receives an additional £1,250 tax-free. The total car allowance received is £5,750, all of which is free from Income Tax and employee's NICs.

If this same employee had an employer who paid only 30 pence per mile for all business miles, they would receive £4,500 in total. However, they could then claim tax relief on the difference between what they received and what they could have received at the AMAP rate. This difference of £1,250 would be claimable through Self Assessment, resulting in a tax saving of £250 for a basic rate taxpayer or £500 for a higher rate taxpayer.

Claiming Tax Relief on Unpaid Mileage

Employees who use their personal vehicle for business travel but receive no mileage payment, or receive less than the AMAP rate, can claim tax relief on the shortfall. This is particularly relevant for employees whose employers do not have a formal mileage reimbursement policy or who work for organisations that only reimburse a portion of the approved rate. The claim is made through HMRC's online portal or the employee's annual Self Assessment tax return.

To make a claim, employees need to maintain records of their business journeys, including the dates, purposes, and distances travelled. While HMRC does not require receipts for mileage claims, they do expect reasonable documentation of business travel. A simple spreadsheet or mileage log maintained throughout the year provides sufficient evidence to support a claim. Claims can be backdated for up to four tax years, so employees who have been under-reimbursed in previous years may still be able to claim the difference.

Using the Car Tax Calculator

For those who want to understand the full picture of vehicle taxation in the UK, using a UK car tax calculator can help estimate both car allowance benefits and other vehicle-related taxes. These calculators consider factors such as vehicle value, CO2 emissions, and fuel type to provide comprehensive estimates of the tax implications of different vehicle arrangements.

The car allowance system interacts with other aspects of UK vehicle taxation, including Vehicle Excise Duty and company car Benefit in Kind tax. Understanding how these different elements work together helps employees and employers make informed decisions about vehicle arrangements and reimbursement policies. For the most accurate calculations based on individual circumstances, consulting with a tax professional is advisable.

Best Practices for Employers

Employers should establish clear car allowance policies that comply with HMRC requirements while providing fair reimbursement for employees who use their personal vehicles for work. The most straightforward approach is to pay the full AMAP rate, which eliminates any tax liability for the employee and keeps administrative complexity to a minimum. Employers should also communicate their policy clearly to all employees who may be affected.

Maintaining records of all mileage payments made to employees is important for HMRC compliance. This includes not just the amounts paid, but also confirmation that the payments were for business journeys and that the employee was required to use their own vehicle. Employers should also review their policies periodically to ensure they remain competitive and compliant with current HMRC guidance.

Frequently Asked Questions

What happens if my employer pays more than the AMAP rate?

If your employer pays more than the AMAP rate, the excess amount is treated as taxable income. This means you will pay Income Tax and employee's NICs on the excess, and your employer will pay employer NICs on the excess as well. It is generally more efficient for both parties to pay exactly the AMAP rate.

Can I claim tax relief if I use public transport instead of my car?

No, the AMAP rates apply specifically to business journeys made by car or van. If you use public transport for business travel, you can claim the actual cost of fares as an employment expense, but this is treated differently from mileage allowances. Keep all receipts for public transport costs incurred for business purposes.

Do the AMAP rates apply to motorbikes?

Yes, HMRC has a separate AMAP rate for motorbikes of 24 pence per mile for all business miles. This lower rate reflects the reduced costs associated with motorcycle ownership compared to cars. If you use a motorbike for business travel, ensure your employer is applying the correct rate.

Can employers use advisory fuel rates instead of AMAP?

No, advisory fuel rates and AMAP serve different purposes. Advisory fuel rates are used for company vehicles where the employer provides fuel, while AMAP rates are used when employees use their own vehicles. Using the wrong rate could result in incorrect tax treatment for both employer and employee.

What records do I need to keep for a mileage claim?

You should keep a record of each business journey including the date, start and end locations, purpose of the journey, and the number of miles travelled. While HMRC does not require a specific format, a mileage logbook or spreadsheet updated regularly provides the best evidence. A minimum of the total business miles per year is needed to support a tax relief claim.

Disclaimer: This information is for educational purposes only and does not constitute tax or legal advice. HMRC rules and rates are subject to change, and individual circumstances may affect the application of these rules. Always consult a qualified tax professional or refer to the official HMRC guidance at gov.uk/mileage-allowance-corporation-tax for the most current information.