Definition
A mileage allowance is a per-mile or per-kilometre payment to employees or self-employed individuals to reimburse the cost of using their personal vehicle for business travel. It is set at flat rates by each tax authority to cover fuel, insurance, road tax, servicing, and depreciation in a single figure, avoiding the need to track each underlying cost separately. The mileage allowance regime is parallel to but separate from the rules for company cars.
What a mileage allowance means in practice
For a bookkeeper, the mileage allowance is the simplified vehicle-expense regime that most SMB employees use. The employee keeps a contemporaneous mileage log showing date, route, business purpose, and miles. At month end, the bookkeeper multiplies the log total by the approved rate, posts it as a vehicle-expense reimbursement, and pays it via expenses or payroll. The employee receives the reimbursement tax-free up to the approved rate.
The most common compliance failures are not contemporaneous logs (reconstructed at year end from diary entries) and exceeding the approved rate without P11D or equivalent reporting. Modern receipt-capture tools that timestamp journeys at the moment they happen close the contemporaneous-log gap; the payroll discipline of capping reimbursements at the approved rate closes the second.
A practical example: a UK consultancy employee drives 8,400 business miles in the 2026-27 tax year. The employer reimburses at the full AMAP rate of 45p per mile (below the 10,000 mile threshold). Total reimbursement: 8,400 multiplied by 45p equals 3,780, paid tax-free. The bookkeeper posts the 3,780 as motor expense and credits the employee’s expense claim. No P11D required because the reimbursement is at the approved rate.
How mileage allowances work by country
United Kingdom
HMRC’s Approved Mileage Allowance Payment (AMAP): 45p per business mile for cars and vans up to 10,000 miles in a tax year, 25p per mile above that threshold. 24p per mile for motorcycles. 20p per mile for bicycles. Plus a 5p per mile passenger supplement for each fellow employee carried on the same business journey. The rates have been unchanged since the 2011-12 tax year despite roughly doubling motoring costs over that period. AMAP cannot be used on a company car: company-car drivers use HMRC’s quarterly Advisory Fuel Rates for fuel-only reimbursement.
Australia
ATO cents per kilometre method: 88 cents per business kilometre in 2025-26 (the rate rises each tax year through the indexation rule under section 28-25 of the Income Tax Assessment Act). Capped at 5,000 business km per car per year. Above 5,000 km the logbook method must be used, which requires recording every business journey over a 12-week representative period and applying the resulting percentage to all vehicle costs. The actual costs method is also available as an alternative.
Canada
CRA reasonable per-kilometre rates for 2026: 70 cents per km for the first 5,000 km of business use in a year, 64 cents per km after, plus a 4 cents per km supplement for travel in Yukon, the Northwest Territories, and Nunavut (so 74 cents and 68 cents respectively). Self-employed individuals can alternatively use actual vehicle expenses (fuel, insurance, repairs, depreciation via Capital Cost Allowance) multiplied by the business-use percentage from a contemporaneous log.
New Zealand
Inland Revenue Tier One rate for 2025-26: 1.04 NZD per km for the first 14,000 km of business use in a year. Tier Two rate of 0.34 NZD per km above that. Petrol, diesel, and hybrid vehicles use the same rate; electric vehicles have a separate (lower) Tier One rate that reflects the reduced fuel cost. The 14,000 km threshold and the rates are reviewed annually.
Singapore
Singapore has no fixed per-km mileage rate. Business mileage in a personal vehicle is reimbursed based on actual costs (fuel, parking, road tax, insurance) and the business-use percentage from a contemporaneous log. Employer reimbursements above the actual cost are treated as taxable income to the employee and must be included in the IR8A annual return.
Related terms
Mileage allowances are part of the wider employment-expense and vehicle-tax regime:
- Capital allowance is the UK mechanism for vehicle depreciation when using actual costs rather than mileage allowance.
- FBT (Fringe Benefits Tax) applies in AU when employer-provided vehicles are used privately.
- PAYG withholding considerations apply when employer top-ups exceed the approved rate.
- Posting a mileage reimbursement requires a journal entry (typically auto-generated from an expense claim).
- The supporting documentation chain typically does NOT include a tax invoice (the mileage log is the supporting document instead).
See also
For UK mileage specifically, see how to claim mileage in the UK. For the wider UK VAT picture, see the UK VAT and MTD guide.
FAQ
See the answered questions above for the 2026 UK rates, employer top-up rules, company-car restrictions, and log requirements.