HMRC rates vs custom mileage rates: why it matters
As an employer reimbursing staff for business mileage, you have two choices: use HMRC-approved mileage rates or set your own custom mileage reimbursement rates. This decision impacts your tax compliance, National Insurance, and employee satisfaction.
With a system like MileageMonster, you can easily choose to “reset to HMRC defaults” or define custom rates. Before you decide, let’s look at what HMRC allows — and where employers can go wrong.
Understanding HMRC advisory and approved mileage rates
HMRC publishes Advisory Fuel Rates (AFRs) quarterly for company cars, and Approved Mileage Allowance Payments (MAPs) for employees using their own vehicles.
- Cars and vans: 45p per mile for the first 10,000 miles, then 25p per mile.
- Motorcycles: 24p per mile.
- Bicycles: 20p per mile.
- Passenger payments: 5p per mile per passenger.
If you reimburse at HMRC’s approved rates, payments are tax-free and exempt from National Insurance. If you reimburse below HMRC’s rates, your employees can claim Mileage Allowance Relief (MAR) on the difference. Go above the AFRs without proof of higher costs, and the excess becomes a taxable benefit that must be reported to HMRC.
MileageMonster is more than a mileage tracking app - it's an accounting tool that can calculate the MAR or taxable benefit for employees and populate the associated P11D form.
When employers can set custom mileage rates
Employers may justify higher or lower mileage rates than HMRC’s standard figures if:
- They can demonstrate actual operating costs (fuel, insurance, maintenance) are higher.
- Rates apply only to genuine business journeys, not commuting.
- Detailed records are kept for all mileage claims.
If you pay above HMRC’s rates without evidence, the difference is taxable. For company cars, use Advisory Fuel Rates — deviations can trigger extra reporting or fuel benefit charges.
Best practice for setting mileage rates
- Benchmark against HMRC rates — always display the latest advisory figures for transparency.
- Define a clear mileage policy — outline eligible journeys, records required, and submission rules.
- Justify any deviations — keep logs or data showing why higher costs apply.
- Update quarterly — HMRC adjusts rates every March, June, September, and December.
- Audit regularly — review annually to maintain compliance and cost accuracy.
HMRC vs custom rates: which is right for your business?
Using HMRC rates
- Pros: Fully tax-free, easy to administer, low audit risk.
- Cons: May not reflect actual operating costs in some regions.
Setting custom rates
- Pros: Flexibility, fairer reimbursements, improved staff satisfaction.
- Cons: Requires evidence, additional admin, possible tax exposure.
How MileageMonster simplifies compliance
MileageMonster lets employers set custom mileage rates while staying compliant:
- Stay up to date with the latest UK regulations so you don't have to.
- Quickly reset to HMRC defaults.
- Define rates by vehicle and fuel type.
- Apply quarterly updates automatically.
- Warn when a rate exceeds HMRC limits.
These features keep your mileage reimbursements accurate, transparent, and HMRC-compliant — saving time so you can focus on the parts of your business you enjoy.
Key takeaways
- Using HMRC mileage rates is safest and simplest.
- Custom mileage rates require justification and record keeping.
- Reimburse only business journeys, not commuting.
- Regularly update rates and review your mileage policy.
- Use MileageMonster to automate rate management and stay HMRC compliant.
