The payment of HMRC approved mileage rates for business mileage incurred in an employee’s own vehicle (45p per mile for the first 10,000 business miles per tax year and 25p per business mile thereafter in a car or van) is generally well understood by employers. However, the position can get more complicated when it comes to the reimbursement of business mileage in a company vehicle.
The use of the appropriate rates for reimbursement is often raised by HMRC during compliance visits. In many cases, employers have consulted the mileage rates but do not use the latest rates and this can result in significant liabilities to settle in the case of a large company vehicle fleet. It is therefore important to check the rates each quarter and update for any change.
Reimbursement of business travel
Given the (tax) costs involved, many employers who provide company cars will opt to reimburse the costs of business mileage, rather than cover all the costs of fuel for a company car. HMRC provide advisory fuel rates for company cars which are updated on a quarterly basis. The latest rates were updated on 1 June 2025 and the price per mile depends on the fuel type and engine size of the vehicle. The current advisory fuel rates are published on GOV.UK.
The advisory fuel rates can either be used by the employer to reimburse the employee for business travel, or they can be used to recoup the cost of private mileage paid for by the employer (as discussed below).
As the name suggests, the rates are advisory, but if any alternative rates used cannot be justified this could have tax and National Insurance implications.
If the employer pays more than advisory rates for business travel without being able to demonstrate why a higher rate is appropriate, the excess will be taxable and subject to Class 1 National Insurance (both employee and employer) via the payroll.
HMRC has not produced advisory fuel rates for company vans, so employers will need to consider the actual fuel costs in those cases.
Is fuel available for private use?
Where a company car is provided to an employee and fuel in the form of petrol or diesel is available for private use, this will give rise to a car fuel benefit. This is calculated by multiplying a fixed amount (£28,200 for the 2025/26 tax year) by a percentage which depends on the vehicle’s CO2 emissions.
A more modest van fuel benefit at a flat rate of £769 for the 2025/26 tax year will apply in respect of private fuel provided for use in a company van.
These amounts are fixed regardless of the actual private fuel use by the employee/director. If the tax on the fuel benefit is higher than the cost of private fuel normally used by an employee, it may be beneficial to withdraw the provision of private fuel and look to other options to cover the costs of business travel.
Reimbursement of private fuel
The alternative to providing payments for business mileage or the employee being subject to a fuel benefit is for the employer to pay for all the fuel used, but for the employee to reimburse their private use. Again, the advisory fuel rates can be used to calculate the fuel costs based on the employee’s records of their private mileage.
Where an employee is reimbursing their employer for private fuel use, if the level of their reimbursement does not cover their private fuel then this will give rise to a fuel benefit being charged in full.
Electric cars
Different rules apply for electric cars and you can find more details of these in HMRC manual EIM23900.
This article reflects the position at the date of publication. If you are reading this at a later date you are advised to check that that position has not changed in the time since.
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