TL;DR
UK contractors can claim 45p per mile for the first 10,000 business miles and 25p above through their PSC. The mileage covers all running costs. Travel to a permanent workplace (24-month rule) is not deductible. This guide covers the process.
Key facts
- Mileage rate 45p first 10,000 business miles.
- 25p per mile above 10,000.
- Motorcycles 24p, bicycles 20p.
- 24-month rule: temporary workplace becomes permanent at 24 months.
- No NI on mileage paid at HMRC rates.
- Passenger payments 5p per business passenger.
- Alternatively claim actual costs apportioned.
- Records: date, journey, miles, purpose.
UK contractors using personal vehicles for business travel can claim mileage allowance through their PSC at the HMRC-approved rates. The mileage allowance is one of the most straightforward expense categories for contractors, with a clear flat-rate calculation that avoids the complexity of actual cost apportionment.
This guide covers the rates, the records required, the 24-month rule for permanent workplaces, and the alternative actual costs method.
Mileage rates and how they work
HMRC-approved mileage rates for cars and vans: 45p per mile for the first 10,000 business miles in a tax year, 25p per mile thereafter. Motorcycles 24p throughout. Bicycles 20p throughout. The rates have been at these levels since 2011 and have not been updated despite fuel price changes.
The PSC pays the contractor the mileage allowance as a tax-free reimbursement under section 230 ITEPA 2003 (the Approved Mileage Allowance Payments regime). No income tax or NI applies to the payment received by the contractor; the company deducts the same amount as a business expense.
The rates cover all running costs: fuel, insurance, MOT, repairs, depreciation, road tax. The contractor cannot also claim these costs separately. Where actual costs exceed the mileage rate (typical for high-mileage drivers of higher-cost vehicles), the actual costs method may produce a larger deduction.
Worked example: a contractor drives 6,000 business miles in a tax year for client site visits. Mileage allowance GBP 2,700 (6,000 * 45p). The PSC pays the contractor GBP 2,700 tax-free; the company deducts the same as a business expense, saving corporation tax of around GBP 540 at 19% rate.
The 24-month rule for permanent workplaces
Travel to a 'temporary workplace' is deductible. Travel to a 'permanent workplace' is treated as commuting and not deductible. Section 339 ITEPA 2003 defines a permanent workplace as one where the worker performs duties for a period that exceeds 24 months (or where it has been intended to last more than 24 months from the outset).
The 24-month rule applies prospectively. Travel during the first 24 months of an engagement is deductible. At month 24, if the engagement continues, future travel becomes non-deductible commuting. The change is at the 24-month point, not at the start.
The rule applies to substantial duties at the site (40% or more of working time). A contractor who works at a site briefly each week but most of the work is elsewhere may not have a permanent workplace at the limited-time site. The 40% test applies the substantial-duties threshold.
Worked example: a contractor signs a 12-month contract at a client site, which extends to 18 months, then 24 months, then 30 months. Travel for the first 24 months is deductible. From month 25, the site is treated as a permanent workplace; travel from then on is commuting (non-deductible). The contractor can claim mileage for the first 24 months at full rates.
Records and evidence
Records to support mileage claims: date of journey, start and end points, business purpose, miles travelled. The records can be kept in a spreadsheet, app (Mileage Pro, MileIQ, Driversnote), or paper log. HMRC's expectation is records sufficient to support the claim under section 12B TMA 1970.
HMRC may challenge claims that look unreasonable: very high mileage relative to apparent business activity, mileage claimed for personal trips, mileage for commuting to a permanent workplace. The records support the contractor's position during a compliance check.
The records should be kept for 5 years 10 months after the SA filing deadline for the relevant year, matching HMRC's standard enquiry window. Digital records are acceptable.
Practical action: GPS-based mileage apps automatically record journeys and let the contractor categorise each as business or personal. The discipline produces robust records without the burden of manual logging. App fees of GBP 5-15/month are typically far less than the value of the mileage claimed.
Passenger payments and other extras
Passenger payments at 5p per mile per business passenger can be claimed in addition to the standard mileage rate. A contractor giving a colleague a lift to a client meeting can claim 5p for each mile per passenger - 50p per 10 miles for one passenger or GBP 1 per 10 miles for two passengers. This is a small additional benefit but legitimate where applicable.
Tolls and parking on business journeys are claimable separately from the mileage rate as actual costs. The mileage rate covers running costs of the vehicle, not road charges. A contractor paying GBP 12 in tolls and GBP 8 in parking on a business trip claims these as expenses alongside the mileage.
Public transport on business trips is fully deductible. Train tickets, bus fares, taxi for business purposes are all claimed as actual costs (not subject to mileage rates which only apply to private vehicles).
Edge case: where the contractor uses a company-owned car (rather than a personal vehicle), the mileage allowance does not apply. The company-owned car's running costs are company expenses; the contractor's business use does not trigger a separate mileage claim. The benefit-in-kind rules apply if there is any personal use.
Actual costs method as alternative
The contractor can choose to claim actual costs (fuel, insurance, MOT, repairs, depreciation) apportioned by business use rather than the mileage allowance. The choice is made for each tax year and applies to all business travel in that year.
Actual costs typically work better for high-mileage drivers (over 15,000 business miles a year) where the per-mile cost exceeds the mileage rate, or for expensive vehicles where depreciation alone exceeds the mileage allowance.
The calculation: total annual running costs (fuel + insurance + repairs + servicing + depreciation) * business mileage / total mileage = deductible amount. The depreciation element requires calculation (typically reducing balance method); the other costs come from receipts.
Worked example: a contractor drives 20,000 business miles in a tax year out of 25,000 total. Annual running costs: fuel GBP 3,500, insurance GBP 800, MOT and repairs GBP 600, road tax GBP 200, depreciation GBP 2,500 (calculated). Total GBP 7,600. Business proportion 80% = GBP 6,080. Compare with mileage allowance: 10,000 * 45p + 10,000 * 25p = GBP 7,000. Mileage allowance is GBP 920 higher in this case.
Electric vehicles and mileage rates
Electric vehicles use the same mileage rates as petrol or diesel: 45p per mile for the first 10,000 business miles, 25p above. HMRC has been considering separate rates for EVs but has not implemented different rates as of 2026. The combined rate covers all running costs including charging.
Company-owned electric vehicles attract very low Benefit-in-Kind rates: 2% for 2024/25 and 2025/26, rising in steps to 9% by 2029/30. This makes company-owned EVs attractive for PSC contractors compared with personally-owned EVs (where the mileage allowance applies).
The economics of company EV versus personal EV with mileage: company-EV cost (purchase or lease) is fully deductible at the company level; running costs (charging, insurance, servicing) are deductible. BiK on personal use is minimal at current rates. Personal EV cost is from post-tax income; the contractor claims mileage allowance at 45p/25p, which may not fully reflect EV running costs.
Practical action: for higher-mileage contractors and those buying expensive EVs, the company-EV route through PSC is often more tax-efficient than personal ownership with mileage claims. The decision needs case-by-case analysis comparing the BiK exposure, deductibility at company level, and the alternative mileage claim value.
Disclaimer
This article provides general information based on rules and figures published by UK government and regulator sources as of May 2026. It is not personal financial, legal, immigration or tax advice. Rules, fees and figures change and individual circumstances vary. Readers should check primary sources or consult a qualified, regulated adviser before acting on any information here.
Frequently asked questions
How much mileage can a UK contractor claim?
45p per mile for the first 10,000 business miles in a tax year, 25p per mile thereafter. Motorcycles 24p throughout. Bicycles 20p throughout. The rates cover all running costs (fuel, insurance, MOT, repairs, depreciation). Paid tax-free by the PSC to the contractor under section 230 ITEPA 2003. The PSC deducts the same amount as a business expense, saving corporation tax.
What's the 24-month rule for contractor travel?
Under section 339 ITEPA 2003, travel to a temporary workplace is deductible. After 24 months at the same client site (or where the engagement is expected to exceed 24 months from the start), the site becomes a permanent workplace and further travel is non-deductible commuting. The rule applies prospectively - travel before the 24-month point remains deductible. Most short-to-medium contracts stay within the 24-month limit.
What records do I need for mileage claims?
Date of journey, start and end points, business purpose, miles travelled. Kept for 5 years 10 months after the SA filing deadline. Spreadsheet, app (Mileage Pro, MileIQ, Driversnote), or paper log are all acceptable. GPS-based mileage apps automate the recording and let the contractor categorise each journey, producing robust records with minimal manual effort.
Can I claim actual vehicle costs instead?
Yes for each tax year. Apportion total annual running costs (fuel + insurance + repairs + servicing + depreciation) by business mileage as a percentage of total. Choose actual costs OR mileage allowance for the year, not both. Actual costs typically work better for high-mileage drivers (over 15,000 business miles a year) or expensive vehicles where depreciation exceeds the mileage allowance.
Can I claim parking and tolls?
Yes separately from mileage. Tolls and parking on business journeys are claimed as actual costs alongside the mileage rate. The mileage rate covers running costs of the vehicle, not road charges. A contractor paying GBP 12 in tolls and GBP 8 in parking on a business trip claims these as expenses in addition to the mileage.