Payslip Expenses

Mileage Allowance (45p to 25p): The Payslip Tax Loophole

If you drive your personal car for business purposes—visiting clients, driving between sites, or doing deliveries—your employer owes you money. The government sets strict tax-free limits (45p and 25p per mile) for these expenses. But what happens if your employer refuses to pay it? You can claim the difference straight back from the taxman.

Running a car is incredibly expensive. Wear and tear, insurance, MOTs, and fuel costs add up rapidly. To ensure you aren't out of pocket when driving for work, HMRC created the Approved Mileage Allowance Payments (AMAP) system.

This is a completely tax-free payment that should appear on your payslip as an expense reimbursement, not as taxable wages. Here is exactly how it works.

The 45p / 25p Rule

HMRC sets a flat rate that employers can pay you completely tax-free to cover the cost of using your own vehicle.

For the first 10,000 business miles in a tax year: 45p per mile.
For every mile over 10,000: 25p per mile.

If you drive 1,000 business miles in a month, your employer can add a £450 "Mileage Expense" line to your payslip. This money bypasses the PAYE system entirely—no Income Tax, no National Insurance. It goes straight into your bank account.

Note: If you drive a motorcycle, the rate is 24p for all miles. For bicycles, it is 20p.

What counts as a "Business Mile"?

This is where HMRC is incredibly strict. Your daily commute to your normal permanent workplace does NOT count as business mileage.

Business mileage only applies to:

Driving from your normal office to a temporary workplace (like a client's site).
Driving between two different workplaces.
Driving to a training course mandated by your employer.

If you are a care worker driving between clients' homes, those miles are business miles. If you are an area manager driving between different retail stores, those are business miles.

Calculate Your Mileage Tax Relief

If your employer is underpaying your mileage, use our Mileage Allowance Relief Calculator to find out exactly how much tax you can reclaim from HMRC.

Mileage Tax Relief Calculator →

The Tax Relief Loophole (When Employers Pay Less)

Here is the most important part: employers are not legally required to pay you the 45p rate. It is merely the maximum they are allowed to pay tax-free.

Many employers will only offer a fraction of this—for example, 20p per mile. If you drive 10,000 business miles, your employer will give you £2,000. But HMRC says you were entitled to £4,500.

You have a "shortfall" of £2,500. This is where the loophole kicks in. You can claim Mileage Allowance Relief (MAR) directly from HMRC.

How to Claim the Shortfall

You do not get the missing £2,500 handed to you in cash. Instead, HMRC deducts the £2,500 from your taxable income. This means you won't pay Income Tax on that chunk of your salary.

If you are a Basic Rate (20%) taxpayer, a £2,500 shortfall results in a £500 tax refund directly from HMRC.
If you are a Higher Rate (40%) taxpayer, it results in a £1,000 tax refund.

How to Apply for Mileage Relief

If your total expense claim for the year is under £2,500, you do not need to fill out a massive tax return. You can simply submit a P87 form online via the gov.uk website. HMRC will usually adjust your tax code for the current year to give you the money back in your upcoming payslips, and send you a cheque for any past years.

If your claim is over £2,500, you are legally required to register for Self Assessment and fill out a tax return to claim the money.

Frequently Asked Questions

What if my employer pays MORE than 45p?

If an incredibly generous employer pays you 55p per mile, the first 45p is tax-free. The remaining 10p is treated as standard profit and will be subjected to Income Tax and National Insurance on your payslip.

Can I claim if I have a company car?

No. The 45p/25p rates are exclusively for employees using their own personal vehicles. If you have a company car, you use the "Advisory Fuel Rates" (AFR) which only cover the cost of petrol/diesel, as the employer is already paying for the car's depreciation and insurance.

How far back can I claim?

You can claim Mileage Allowance Relief for the last 4 previous tax years. If you have been driving for work since 2022 and your employer only paid 20p a mile, you could be owed thousands of pounds in overpaid tax. You just need to find your mileage logs.