Mileage Matters: Navigating Payments Above the Approved Allowance

Mileage Matters: Navigating Payments Above the Approved Allowance

In payroll, it’s often the small things that create the biggest compliance issues. One question that comes up often is how to properly handle mileage payments that go over HMRC’s approved Mileage Allowance Payments (MAPs) rates.

Reimbursing employees for business travel is routine, but paying more than the approved rate without understanding the tax and reporting requirements can expose organisations to risk. So what’s the right way to manage these payments?

Understanding the Basics

HMRC sets Approved Mileage Allowance Payments to give employers a tax-free way to reimburse staff who use their own vehicles for work. For cars and vans, the current rate is 45p per mile for the first 10,000 miles in a tax year, then 25p per mile after that.

Any amount paid above these rates counts as a taxable benefit.

What to Do When You Pay More Than the MAPs Rate

If an employee receives more than the approved rate, the extra amount needs to be treated as earnings. That means it’s subject to:

• Income tax
• Class 1 National Insurance contributions (NICs)

This excess should be processed through payroll, with the correct deductions applied.

Don’t Overlook the P11D

At the moment, employers also need to report any excess mileage payments on a P11D form. This is HMRC’s form for reporting expenses and benefits given to employees.

Missing this step can lead to compliance issues, incorrect benefit reporting and potential fines. Make sure your payroll team knows what needs to be included and how to handle it properly.

What If You Pay Less Than the MAPs Rate?

When employers pay below the approved rate, employees have the option to claim Mileage Allowance Relief (MAR) through their self-assessment tax return or by contacting HMRC.

However, employers should also be aware of the implications for Relevant Motoring Expenditure (RME), especially when it comes to NICs. These situations can get complicated, so having up-to-date guidance and regular training is important for anyone working with expenses and benefits.

Stay Updated

Mileage rates and reporting rules can change, so it’s essential to stay current with HMRC guidance. Keep an eye on updates related to P11D deadlines, Class 1A NICs, fuel rates and car benefit rules.

Final Thoughts

Mileage might seem like a small part of payroll, but it carries real compliance responsibilities. Whether you’re reimbursing above or below HMRC’s approved rates, it’s important to understand the rules.

Consider the following steps:

• Review travel policies regularly
• Communicate clearly with employees about how mileage is reimbursed
• Keep payroll and HR systems aligned with HMRC guidance
• Provide regular training on expenses and benefit reporting

By paying attention to the details, employers can ensure fair treatment for staff and reduce compliance risks. It’s a good reminder that in payroll, accuracy really does matter.