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Mileage Reimbursements in the UK: What Overseas Employers Need to Know

If you are responsible for employees working in the UK, it’s important to understand how business mileage can be reimbursed tax-free. The UK has strict rules about how much can be paid and when, and these rates are updated regularly.

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1. Tax-Free Mileage for Private Cars

If your UK-based employee uses their own car for business travel, you may reimburse them using HMRC’s Approved Mileage Allowance Payments (AMAPs).

HMRC Rates for 2025:

  • 45p per mile for the first 10,000 business miles in a tax year
  • 25p per mile for additional miles above 10,000
  • +5p per mile per additional employee passenger (also travelling for work)

These rates apply to petrol, diesel, hybrid, and electric vehicles.

Important: If you reimburse at higher rates, the excess is taxable. If you reimburse at lower rates, the employee may claim tax relief on the difference.

Note: The UK tax year runs from 6 April to 5 April the following year. Tracking mileage correctly per tax year is essential.

2. What Qualifies as Business Mileage?

HMRC defines business mileage as travel that:

  • Is necessary for the job
  • Is to a temporary or non-regular work location
  • Would not have happened if the job did not require it

 

Daily commutes between home and a regular workplace do not qualify for tax-free mileage.

3. Mileage for Company Cars: Advisory Fuel Rates (AFRs)

If your employee drives a company car, different rules apply. You may reimburse them using HMRC’s Advisory Fuel Rates, published quarterly:

  • AFRs are lower than private car mileage rates.
  • Reimbursement above AFRs must be justified by actual fuel receipts or becomes taxable.

Latest Advisory Fuel Rates

Important Points for Company Cars

  • If the employer pays for any private fuel, a fuel benefit in kind charge arises — even for a single £1 journey.
  • In most cases, it’s more tax-efficient for company car drivers to reimburse the employer for private fuel and claim only business mileage.
  • Actual fuel cost reimbursement is possible but requires precise record-keeping and valid VAT receipts.

4. Business Practicalities for Overseas Employers

Overseas-based companies often face challenges:

  • Leasing cars in the UK may not be possible without a UK entity.
  • Many employers instead pay a car allowance, and the employee uses their own car.
  • If you do this, you must reimburse mileage carefully to avoid UK tax issues.
  • UK travel policies must align with HMRC mileage rules, not local (e.g., European per-kilometre) rates.


Common Mistakes Overseas Employers Make

  • Applying kilometre-based travel policies instead of the UK’s per-mile system
  • Reimbursing all travel indiscriminately without separating private and business journeys
  • Assuming advisory rates are optional or outdated (they change quarterly!)
  • Paying for private fuel without considering the tax consequences


 Best Practice

  • Update employee expense forms quarterly to reflect new AFRs.
  • Keep business mileage logs.
  • Set a clear UK travel reimbursement policy.


Our firm can help you build a compliant system that works across jurisdictions.

FAQs – Mileage Reimbursements in the UK

Employees may claim tax relief on the difference between your rate and the HMRC rate.
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