When an employee uses their own car for business journeys, the cost of running the car for those journeys can be recovered through one of two paths: a Mileage Allowance Payment (MAP) directly from the employer, or a Mileage Allowance Relief (MAR) claim by the employee against HMRC. The choice — usually constrained by the employer’s reimbursement policy — has different tax, cashflow, and administrative implications.
For the actual AMAP rates (45p/25p for cars, motorcycle, bicycle, and passenger), see HMRC Mileage Rates 2025-26 + 2026-27. For the per-mile calculation, see the Mileage Allowance Calculator.
1. Three paths, three outcomes
| Path | Who pays | Tax position |
|---|---|---|
| A. Employer pays full AMAP | Employer | Tax-free to employee. Employer deducts as business expense. |
| B. Employer pays less than AMAP | Employer + Employee | Employer’s portion tax-free. Employee claims shortfall as MAR via P87/SA. |
| C. Employer pays nothing | Employee | Employee claims full AMAP as MAR via P87/SA. |
The employee’s net position is identical in Paths A and B if the MAR claim is made — both give 45p/25p relief on every business mile. Path C requires the employee to fund the journey out of pocket and recover only the tax portion via MAR.
2. Cashflow comparison — Path A vs Path C
The administrative and cashflow gap between full AMAP from employer and full self-claim is meaningful:
Path A — Full AMAP from employer
A sales rep driving 5,000 business miles in 2026-27 and reimbursed at 45p/mile:
- Cash inflow during year: 5,000 × 45p = £2,250 (tax-free).
- Tax effect: zero.
- Timing: paid monthly with salary, immediate cashflow.
Path C — Self-claim via P87
Same employee, 5,000 business miles, employer pays nothing:
- Cash outflow during year: ~5,000 × current real cost per mile (~25p-40p in 2026) = £1,250-£2,000 out of pocket for fuel, insurance, depreciation share.
- Tax effect: Claim 5,000 × 45p = £2,250 as Mileage Allowance Relief on Form P87. Tax saved: 20% × £2,250 = £450 (basic rate) or 40% × £2,250 = £900 (higher rate).
- Timing: P87 filed after tax year end (April 2027). Refund issued ~3 months later via cheque or BACS.
Net loss to employee in Path C vs Path A: £2,250 reimbursement vs £450-£900 refund = the employee bears £1,350-£1,800 of real cost. Plus the delay of 3-12 months for the refund.
The choice between Path A and Path C is almost always controlled by the employer, not the employee. Employees in industries with reimbursement (sales, healthcare, professional services) typically receive AMAP. Employees in industries without (administrative, manufacturing) self-claim.
3. Path B — Employer pays partial AMAP, employee tops up via MAR
The most common middle ground: employer pays a flat per-mile rate below AMAP (often 25p-35p), employee claims the shortfall.
Worked example: 25p reimbursement, 5,000 miles
- Employer pays: 5,000 × 25p = £1,250 tax-free.
- AMAP entitlement: 5,000 × 45p = £2,250.
- Shortfall: £2,250 − £1,250 = £1,000.
- MAR claim on P87: £1,000.
- Tax refund: 20% × £1,000 = £200 (basic) or 40% × £1,000 = £400 (higher).
- Total recovery: £1,250 (employer) + £200-£400 (HMRC refund) = £1,450-£1,650.
The employee gets the AMAP relief on the shortfall, partially offsetting the difference. Employer pays less than full AMAP but the employee still recovers most of the cost.
This is the most common arrangement for two reasons:
- Employer reduces direct payroll cost.
- Employer avoids the administrative burden of tracking exact business miles per employee (a flat 25p is administratively simpler than verifying the 10,000-mile threshold).
4. P87 vs Self Assessment — when to use which
The Mileage Allowance Relief claim mechanism depends on the total claim size and existing Self Assessment status.
Form P87 (Mileage Allowance Relief)
Use for:
- Total MAR claim under £2,500/year.
- Not otherwise required to file Self Assessment.
Process:
- Download Form P87 from GOV.UK or use the online service.
- Complete with mileage records (dates, destinations, miles).
- Submit by post or online.
- HMRC processes within ~12 weeks; refund issued by cheque or BACS.
For repeat-year claims, the online P87 portal saves prior-year mileage logs.
Self Assessment
Use for:
- Total MAR claim above £2,500/year.
- Already required to file SA for any other reason (self-employed, dividend income > £10,000, etc.).
Process:
- Include mileage in employment-related expenses on the SA tax return.
- Submit by 31 January following the tax year end (online deadline; 31 October for paper).
- Refund offset against SA balance, or issued separately if balance is in refund position.
SA claims have a slower processing time but integrate with all other tax matters.
5. The £2,500 P87 cap — why it matters
The £2,500/year cap on P87 claims is the boundary between simple-relief and full-SA filing. At 45p/mile, £2,500 of relief corresponds to about 5,555 miles. Beyond that, the employee crosses into Self Assessment.
This creates a moderate planning friction:
- An employee at 5,000 miles/year: comfortably in P87 territory.
- An employee at 6,000 miles/year: P87 capped at £2,500, the additional £450 worth of relief lost or must file SA.
- An employee at 12,000 miles/year: SA required for the £5,400 claim (more than £2,500 above the threshold doesn’t fit in P87).
Employees at the boundary should ensure their employer can move them onto MAP reimbursement to avoid the SA filing burden.
6. Records required for MAR
Whether claiming via P87 or SA, HMRC requires the same contemporaneous records:
- Date of journey.
- Reason (specific business purpose).
- From and to addresses.
- Miles driven.
- Vehicle used (if multi-vehicle household).
The mileage records should be summarised by tax year for the claim, but the underlying detail must be kept for 6 years in case of HMRC inquiry.
In practice, app-based mileage tracking (MileIQ, TripLog, simple Google Maps Timeline) is sufficient. A spreadsheet with the five columns above works. The records do not need to be submitted with the P87 — only kept for inquiry.
7. National Insurance — where MAP vs MAR diverges
The key difference between MAP (employer reimbursement) and MAR (employee self-claim) is on the NI side:
| Path | Employer Class 1 NI | Employee Class 1 NI |
|---|---|---|
| A. MAP at AMAP rate | None | None |
| B. MAP below AMAP + MAR shortfall claim | None on employer’s portion. None on the MAR shortfall (no payroll involvement). | Same |
| C. Pure MAR (no employer payment) | N/A — no employer payment | None — relief is via tax refund, not pay |
| MAP above AMAP | 15% on the excess | 8% on the excess (or 2% above UEL) |
The 15% employer NI on excess MAP is a real cost — employers paying above AMAP cost themselves both the over-payment and the NI on the over-payment. This is why most employers stay at or below AMAP rates.
8. Pension and student loan effects
Tax-free AMAP reimbursement (Paths A and B-employer portion) does not count as pensionable earnings or student loan-relevant income. The MAP doesn’t push the employee into higher tax brackets or student loan repayment thresholds.
MAR refunds (Paths B-employee portion and C) similarly don’t count — they are refunds of tax already paid, not new income.
This makes mileage reimbursement one of the few employee expense reimbursements with zero indirect cost on the employee — no pension hit, no student loan trigger, no PA taper effect.
9. The decision matrix
For an employee with control over the arrangement (negotiating salary or expenses package):
- High mileage (>10,000/year): Push for full MAP at AMAP rates. The 25p/mile beyond 10,000 still beats no reimbursement.
- Variable mileage (5,000-15,000/year): Push for MAP at 45p. The 10,000-mile threshold makes the per-mile rate predictable for budgeting.
- Low mileage (<5,000/year): MAP at AMAP, or accept partial + self-claim.
- Travel-heavy industry (sales, healthcare): MAP is standard; if not offered, raise it in compensation negotiation.
For an employee without control:
- Always claim MAR if employer pays below AMAP.
- File P87 each year if under £2,500.
- Move to SA if above £2,500 to capture full relief.
For a self-employed individual, the AMAP option is the simplified method — see HMRC Mileage Rates 2025-26 section 6.
10. Common pitfalls
- Forgetting to claim MAR when employer pays below AMAP. Employees in administrative roles often don’t realise they can claim — the £200-£900 / year tax refund is missed.
- Claiming non-qualifying mileage. Commuting from home to permanent workplace is not eligible. Many failed P87 claims include commuting miles incorrectly.
- Missing the 4-year time limit. MAR can be claimed for the current and previous 4 tax years. A 2026-27 claim filed in 2027-28 can also cover 2023-24, 2022-23, 2021-22, and 2020-21 if missed at the time. Beyond 4 years is barred.
- Calculating relief at the wrong rate. The MAR claim is the full AMAP entitlement minus what employer paid, not the tax saved on that amount. The tax saving is the marginal-rate refund on the relief.
- Not retaining mileage records. HMRC compliance checks have rejected MAR claims where records were not contemporaneous.