Company car mileage allowance: UK business mileage rates, AFRs and automation in 2026/27

Getting company car mileage allowance wrong costs your business real money - through overpaid tax, unexpected benefit-in-kind charges, or hours lost to manual admin. This guide breaks down exactly how HMRC's rates work for the 2026/27 tax year, what finance teams need to track, and how to automate the entire process.

What is company car mileage allowance in 2026/27?

Company car mileage allowance in the UK refers to HMRC's Advisory Fuel Rates - pence per mile figures that employers use when reimbursing employees for business travel in company cars. Payments up to HMRC-approved limits do not count as taxable income, making AFRs the cleanest way to cover fuel costs without creating extra tax.

Three concepts to keep separate: Advisory Fuel Rates for company cars, approved Mileage Allowance Payments for a personal vehicle, and car allowance schemes (cash paid in lieu of a vehicle). Accurate business mileage records are essential to keep every payment tax-free and compliant - tools like Expend's GPS mileage tracking can automate this entirely.

Company car mileage allowance vs business mileage in your own car

The rules that apply when you drive a company car for business purposes are fundamentally different from those for using your own car. Understanding which regime applies prevents costly errors on P11D returns and payroll.

A company car is a vehicle owned or leased by the employer and made available to the employee - typically triggering a benefit-in-kind charge if there is private use. Business mileage means journeys made for work purposes; standard commuting from home to a permanent workplace is not eligible for tax-free reimbursement.

How HMRC advisory fuel rates (AFRs) work for company cars

Advisory fuel rates are HMRC's suggested pence-per-mile rates for company cars - used either when reimbursing employees for business mileage or when calculating how much an employee should repay for private fuel use. Advisory fuel rates are updated quarterly by HMRC, typically on 1 March, 1 June, 1 September, and 1 December. Current and historical rates are published on GOV.UK.

AFRs vary by engine size and fuel type. From 1 June 2026:

• Petrol: up to 1400cc - 14p per mile; 1401cc to 2000cc - 17p; over 2000cc - 26p

• Diesel: up to 1600cc - 15p; 1601cc to 2000cc - 17p; over 2000cc - 23p

• LPG: up to 1400cc - 11p per mile lpg; 1401cc to 2000cc - 13p; over 2000cc - 21p

• Electric vehicles have specific advisory electricity rates: 7p per mile for home charging, 15p per mile for public charging

Hybrid cars are treated under petrol or diesel advisory rates depending on their combustion engine. HMRC calculates AFRs using manufacturers information on MPG data (weighted by fleet sales and adjusted for real-world conditions), combined with average fuel prices from sources like the Department for Energy Security and Net Zero and the Automobile Association.

Employers can use advisory fuel rates to reimburse employees tax-free. Paying at or below the fuel rate avoids extra taxable profit and Class 1A NIC. Paying above without evidence of higher actual costs creates a taxable benefit and triggers Class 1 NIC.

Tax, fuel benefit and company car mileage: what finance teams must know

Getting company car mileage allowance wrong doesn't just create admin headaches - it directly affects PAYE, Class 1A NIC, and can trigger unexpected fuel benefit charges that hit both the employer and employee.

The benefit-in-kind car tax calculation works like this: the car's list price is multiplied by an emissions-based percentage (set by HMRC's bands for each tax year), then by the employee's income tax rate. A higher rate taxpayer pays more. For 2026/27, lower-emission vehicles - particularly electric cars - attract significantly lower BIK percentages.

The car fuel benefit applies when an employer provides free or subsidised fuel for private use. If an employer pays for private fuel, this is a taxable benefit in kind. There is no fuel benefit charge if the employee repays the full cost of all private fuel use (calculated via AFR × private mileage), or if the employer simply does not provide any private fuel at all.

For company vans, the rules differ. The van benefit charge for private use is £4,170, and the van fuel benefit is £798 for 2026/27 - both flat rate figures regardless of vehicle value.

Excess reimbursement above advisory rates is taxable as income. Even small rounding errors can create exposure. HMRC requires clear mileage records for tax purposes, and robust logs showing dates, destinations, and business purpose are your first line of defence. Expend's policy engine and AI automation can enforce internal business mileage rates, flag claims above AFR automatically, and export clean data for P11D and payroll reporting.

Electric company cars, advisory electricity rates and modern business travel

Electric company cars are growing fast in UK fleets, and advisory electricity rates are now central to any company car mileage allowance policy. The tax advantages of electric vehicles - particularly low BIK rates - make them attractive, but reimbursing employees for business travel in them requires care.

HMRC's electric advisory rate distinguishes between home charging at 7p per mile and public charging at 15p per mile. The home charging rate assumes cheap overnight tariffs, while the public charging rate reflects costs at chargers under 50kW. In practice, rapid and ultra-rapid public chargers often cost 50–89p per kWh, pushing real costs well above the standard rate. This can mean employees subsidise their own business mile from their own pocket.

Where actual costs are demonstrably higher, employers can pay above the advisory rates - provided they evidence the difference with public charging receipts and realistic efficiency figures (the current weighted average is roughly 3.59 miles per kWh). Without that evidence, any excess becomes taxable.

Hybrid cars continue to use petrol or diesel AFRs depending on their main fuel type. Rules for electric vans and pool cars follow the same business mileage principles as electric cars.

Well-designed mileage rates for electric vehicles also support ESG goals - reducing overall car fuel consumption and encouraging EV adoption while remaining HMRC-compliant. Expend can capture EV charging receipts alongside business mileage, tag them as travel expenses, and help finance teams compare real charging costs against advisory rates when revising reimbursement policies.

Setting, recording and reclaiming company car mileage in practice

This is where most teams trip up. Designing a company car mileage policy that actually works - and survives an HMRC check - comes down to three things: clear rate decisions, accurate records, and consistent process.

Policy decisions you need to make:

• Reimburse strictly at HMRC advisory fuel rates, or set custom rates for company cars (with justification)?

• Provide private fuel and require repayments, or exclude private use entirely?

• How do you handle employees using their own cars for work use?

Record-keeping is non-negotiable. Employers and employees must keep detailed records of business miles for reimbursement claims. Mileage records should include dates, destinations, and business purposes. Accurate mileage logs support expense claims and reduce audit risks. Employers must keep records of mileage reimbursements for audits - HMRC can request these several years at a later date.

Employees can also claim an extra 5p per mile tax-free for carrying colleagues on business trips - a detail often missed.

VAT: employers can usually reclaim input VAT on the fuel element of company car business mileage where valid VAT receipts exist, using AFRs to calculate the fuel portion per mile.

Common pitfalls: treating home-to-office travel as business mileage, missing receipts for VAT reclaim, failing to update internal rates after quarterly AFR changes, and not separating business and private mileage where subsidised fuel is provided.

Worked example: An employee drives 800 business miles in a 1.6L diesel company car in July 2026. The diesel AFR (1401cc to 2000cc) is 17p per mile. Reimbursement: 800 × 17p = £136. Because the employer reimburses at AFR, no additional tax arises. If the same employee drives 2,000 private miles, they repay 2,000 × 17p = £340 - preventing a fuel benefit charge. These are the costs involved in keeping the books clean.

Automating mileage tracking and company car allowance with Expend

Manual mileage tracking with spreadsheets and paper logs creates delays, errors, and compliance gaps. Expend removes that friction for finance teams across SMEs and mid-market businesses.

Expend's GPS mileage tracking automatically records business trips in real time, calculates distance, and distinguishes business mileage from personal journeys - all within the app. No more guesswork over which trips qualify as a business expense.

You can configure your own company car mileage rates - including AFR-linked rates and internal car allowance policies - and apply them automatically to recorded trips. Commuting and non-approved mileage? Blocked by policy rules before a claim is even submitted.

Users attach digital receipts - including car fuel and EV charging receipts - via the mobile app with OCR scanning, enabling accurate VAT reclaim on eligible mileage. Expend's Card Connect feature for existing Visa and Mastercard business cards gives real-time visibility over fuel, tolls, and parking spend alongside mileage data.

Direct integrations with Xero, QuickBooks, and Sage mean mileage is automatically coded as a business expense, with clean exports ready for P11D reporting and support for accountants preparing assessment tax return filings where employees have under-reimbursed mileage.

Company car mileage allowance doesn't have to be a quarterly headache. Get your rates right, keep your records clean, and let the software handle the rest - so your finance team can focus on the work that actually matters in the 2026/27 tax year.