Understanding the Basics of Mileage Claims for Contractors
When I sit down with contractors – whether they’re IT consultants dashing between client sites in London or builders travelling across the North West – the conversation almost always turns to mileage claims sooner or later. It’s one of those areas where HMRC’s rules feel surprisingly generous compared to ordinary employment, but only if you follow them to the letter. Get it wrong and you either leave money on the table or, worse, store up problems for a future enquiry.
Contractors tax accountants in the UK who operate through their own limited companies have two completely different routes for dealing with business travel in the car or van they own personally. The first is the HMRC-approved mileage allowance payments (often called AMAP rates by old hands), and the second is claiming actual running costs through the company with a small dispensation for private use. Nine times out of ten, the approved mileage route is simpler and more tax-efficient, especially in the first couple of years of contracting.
How the Approved Mileage Allowance Payments (AMAP) System Actually Works in Practice
HMRC publishes a fixed rate per business mile that is supposed to cover fuel, wear and tear, insurance, repairs – the lot. For the tax year 2025/26 (which we’re in right now as I write this in November 2025), the rates remain unchanged from the last thirteen years: 45p per mile for the first 10,000 business miles in the tax year, and 25p thereafter. Vans get 60p with no drop after 10,000, motorcycles 24p, and you can even claim 5p per passenger if you’re carrying fellow employees (though that’s rare for contractors).
The beauty of the system from a limited-company perspective is that the company can reimburse the director (you) at these rates completely tax-free and National Insurance-free. The company then gets corporation tax relief on the full amount paid out. I’ve had clients who drive 25,000–30,000 business miles a year and pull £9,000–£11,000 out of the company each year with zero tax or NI – that’s real money.
Here’s a quick table I show clients when we’re mapping this out for the first time:
| Vehicle Type | First 10,000 business miles | Additional miles | 2025/26 Rate unchanged since |
| Cars & vans | 45p | 25p | April 2011 |
| Motorcycles | 24p | 24p | April 2002 |
| Bicycles | 20p | 20p | April 1999 |
| Passenger payment | 5p per passenger per mile | 5p | April 2002 |
The key point – and the one that trips people up constantly – is that these rates only apply to vehicles owned personally by the contractor. If the company owns or leases the car, you cannot use AMAP rates; you’re into advisory fuel rates or actual cost apportionment instead.
The Difference Between Home-to-Work Travel and Genuine Business Journeys
This is where I earn my money. HMRC is absolutely ruthless about what counts as a business mile. Driving from your house to a regular place of work – even if it’s a client site you’ve been at for eighteen months – is commuting, pure and simple. No mileage allowance, no actual costs, nothing.
A genuine business journey usually starts when you leave either your home office (if you’ve properly established one) or your previous client site and head to a temporary workplace. The 24-month rule is critical here: if you’re at the same client site for a contract expected to last less than 24 months, and it actually does, every trip there from home can qualify as business travel once you’re into the contract proper.
I’ve had arguments with HMRC inspectors over this more than once. One client, a project manager in Manchester, had a rolling contract with a bank that kept getting extended. After 26 months it flipped into being a permanent workplace and we lost the mileage claim retrospectively for the last two months. Painful, but avoidable with proper planning – we restructured the later contracts through an umbrella for that period instead.
Record-Keeping That Actually Survives an HMRC Enquiry
You’d be amazed how many contractors think “I’ll just keep the odometer readings at the start and end of the year” is enough. It isn’t – not by a country mile (sorry).
HMRC’s minimum requirement is date, destination, purpose, and mileage for every single business journey. I make my clients use either MileIQ, Driversnote, or a simple Excel template I provide that mirrors exactly what HMRC wants to see in Business Tax Account uploads.
A typical entry looks like this:
| Date | From | To | Purpose | Miles | Rate | Amount |
| 14/11/2025 | Home (WA14) | Client site, Trafford Park | Weekly project meeting & workshops | 28 | 45p | £12.60 |
| 14/11/2025 | Trafford Park | Client office, Salford | Requirements gathering session | 6 | 45p | £2.70 |
| 14/11/2025 | Salford | Home (WA14) | Return journey | 31 | 45p | £13.95 |
Notice the return journey is separately allowable because the client has two different sites – that’s a crucial distinction.
When Contractors Accidentally Create a Taxable Benefit
The single biggest mistake I see – and I’ve corrected it for hundreds of clients over the years – is paying themselves more than the 45p/25p rate. If the company reimburses, say, 60p per mile because “fuel is expensive at the moment”, every penny above the approved rate becomes a taxable benefit in kind. Suddenly you’ve got PAYE, National Insurance, P11D reporting, and Class 1A NIC for the company. I’ve seen contractors accidentally create £4,000–£5,000 tax bills doing this.
The reverse is also true: if you reimburse less than 45p/25p, the company still gets full corporation tax relief on what it pays, but you as an individual can claim Mileage Allowance Relief on your personal tax return for the difference. It’s rare for contractors to do this because most want the money out tax-free, but it’s useful when cashflow is tight in the company.
Moving From Simple Mileage Claims to Actual Vehicle Costs Through the Company
Sometimes the approved mileage system isn’t the best answer. If you’re driving a high-value car – think Audi RS, BMW M4, that sort of thing – or you’re doing very low mileage, you might be better off having the company own or lease the vehicle and claiming capital allowances and running costs instead.
The trade-off is brutal on benefit-in-kind charges once CO2 emissions creep above 50g/km, but for electric vehicles it’s an absolute no-brainer at the moment with 2% BIK rates until April 2028.
The Advisory Fuel Rates Route for Company Cars
When the limited company provides the car, HMRC switches you to Advisory Fuel Rates (AFR) for reclaiming fuel used on business journeys. These rates change quarterly and are based on actual pump prices and engine sizes. As of 1 September 2025, a 2000cc diesel gets 14p per business mile, whereas a 1600cc petrol gets 13p.
The company can only reclaim VAT on fuel if you keep the dreaded fuel scale charge or have proper mileage records showing business/private split. Most contractors I deal with who have company cars simply put all fuel through the company and absorb the fuel scale charge – it’s simpler, and the VAT recovery usually outweighs the scale charge anyway.
Capital Allowances on Vehicles – The CO2 Trap That Catches Everyone
Buy a car through the company with CO2 emissions over 50g/km and your capital allowances drop to the main pool at 18% writing down allowance (reducing to 6% from April 2026 for anything over 0g/km that’s not fully electric). Buy a brand new electric van and you still get 100% first-year allowance in 2025/26.
I’ve had clients spend £80,000 on a Range Rover for “business reasons” and then discover they’re getting less than £3,000 corporation tax relief in the first year. Heartbreaking.
Hybrid Strategies – Using Both Systems Intelligently
Some of my longer-standing clients run two vehicles. They keep a cheap, high-mileage diesel or an electric car personally and claim 45p per mile on 25,000+ business miles a year – often £10,000+ tax-free. Then they have a nicer car owned by the company for the occasional meeting where image matters, accepting the BIK charge because it’s only used 3,000–4,000 miles a year privately.
It’s perfectly legitimate as long as the private-use car really is used for business travel and you’ve got the records.
What Happens When You Mix Business and Private Miles in the Same Vehicle
HMRC accepts that most contractors will have some private mileage in their personally-owned car. That’s fine – you simply claim the business proportion at 45p/25p. The danger comes when inspectors decide the car is “available for private use” and try to argue there’s a company car benefit. As long as the company is only reimbursing actual business miles at approved rates or less, and there’s no other private benefit, you’re safe.
Dealing with Client-Site Parking, Congestion Charges, and Tolls
These are separate from mileage but always come up in the same conversation. The company can reimburse parking fees, ULEZ charges, Dartford Crossing, M6 Toll – all of it – completely tax-free provided it’s wholly and exclusively for business. The same applies to train fares or flights to client sites outside your normal area.
I always tell clients to keep a separate “sundry expenses” claim each month because HMRC loves picking on round-sum allowances.
The Umbrella Company Mileage Trap
If you’re ever forced into an umbrella (key word: ever), the mileage rules flip completely. Umbrellas can only pay AMAP rates tax-free up to the first 10,000 miles across all employments in the tax year – not per contract. I’ve seen contractors move between three umbrellas in a year, each paying 45p thinking it’s fine, and then discover in January that they’ve exceeded the 10,000-mile threshold months earlier and owe thousands in tax and NI.
Always, always track your cumulative business miles across the entire tax year regardless of who is paying you.
Getting Ready for Self-Assessment and Corporation Tax Returns
By the time January rolls around, your accountant needs a complete mileage log broken down by tax year (not calendar year, not contract year – tax year). We reconcile the total business miles claimed against the reimbursement total, check nobody has accidentally gone over the approved rates, and make sure the 10,000-mile threshold calculation is correct.
For limited company contractors, the mileage reimbursement goes through the payroll as a tax-free expense reimbursement (usually code MILE on the FPS submission) and appears on your P60 as non-taxable. For actual cost claims, it’s different again – usually accounted for as motoring expenses with apportionment.
After twenty-plus years doing this, I can usually spot within thirty seconds of looking at a set of records whether they’re going to survive HMRC scrutiny. The contractors who sleep easiest are the ones who treat mileage claims like any other client invoice – accurate, contemporaneous, and detailed.
