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Overview
Mileage allowance payments not taxed at source cover payments an employer makes to employees who use their own vehicles or cycles for business travel, where payments are initially exempt if they do not exceed statutory approved mileage rates, but any excess over the approved amount is subject to Income Tax and National Insurance. Where these payments are not processed through payroll initially, the BIK Module can be used to record the taxable element when payments exceed the approved rates.
Within the BIK Module, this benefit type is managed through two Event Types:
Use of own vehicle — business mileage allowances for personal cars, vans, motorcycles, or bicycles.
Passenger payments — payments for employees carrying other employees on business journeys.
For detailed guidance on approved rates, exemptions, and calculation rules, see GOV.UK: Business Travel Mileage.
This article explains how these events should be applied with BIK module considerations and how to calculate the benefit value. See below for some other articles to assist with preparing and processing benefits in the BIK module:
- For creating this benefit type at company level, go to Configuring Company Benefits
- For applying benefits to employee records, go to Applying Benefits to Employees: Manual & Data Imports
- For how this looks in Payroll when processing, go to How Payrolled Benefits are Reflected in Payroll
- For National Insurance and Best Practices, please read the National Insurance and Income Tax Handling for Payrolled Benefits article
Contents
- BIK Module Configurations and Considerations
- Event Type: Use of own vehicle
- Event Type: Passenger Payments
BIK Module Configurations and Considerations
Mileage allowance payments not taxed at source are generally exempt when paid within statutory approved rates, but any amount paid above these rates becomes a taxable benefit. Within the BIK Module, the system does not automatically calculate the taxable excess. Users must first manually calculate the benefit value (taking into account vehicle type, statutory rates, thresholds such as 10,000 miles, and any applicable limits) and then enter that value into the module. Once entered, the module applies the appropriate Income Tax and National Insurance liabilities.
Mileage logs, business purpose of journeys, and any proof of passenger travel should be retained to substantiate exemption and taxable amounts. Work is scoped to improve the BIK Module to aid users in calculating taxable mileage amounts, retaining travel logs and maximising automation, reducing manual effort while maintaining statutory compliance.
Mileage allowance payments not taxed at source is technically treated as a one-off event, not a time-based benefit held over a period of time (Such as a Health plan/medical benefit). The full taxable value arises at the point of transfer and should not be reduced based on duration.
Please Note: If the benefit is a Trivial Benefit but you still wish to record this in the BIK module, then consider using the "Other" Benefit type, also selecting the event type that attracts no Income Tax or National Insurance Liability. See here for more information: BIK Module - Other Items
Company-Level Configuration
When configuring this benefit at company level:
Set the benefit to retain until the end of the tax year for leavers to ensure the taxable value is always fully applied.
Since this is a single transaction, do not configure pro-rating based on duration of employment.
Employee-Level Configuration
When configuring this benefit at employee level, within the current version of the BIK module, Benefit Start and Benefit Stop dates are used to calculate pro-rated values. While this logic is appropriate for ongoing benefits, it does not automatically align with the treatment of one-off events.
Enter the full value of the payment as the benefit value
Set the Benefit Start and Benefit Stop dates to the full tax year to avoid incorrect pro-rating.
With this configuration, even if the employee leaves, the full taxable value of the payment will be taxed correctly.
Ongoing Enhancements
The current release of the BIK Module fully supports compliant processing of this benefit type for income tax purposes. While certain behaviours, such as date-based pro-rating, require deliberate configuration for this benefit type, the correct legislative outcome can be achieved through the setup approach outlined above.
Employers can therefore operate this benefit accurately by applying the prescribed configuration.
Future enhancement phases will further refine benefit-specific behaviour to reduce manual intervention, increase automation, and more closely reflect the distinct legislative treatment of one-off benefit events such as Assets Transferred.
Event Type: Use of own vehicle
This Event Type applies when an employee uses their own car, van, motorcycle, or bicycle for business travel and the employer pays a mileage allowance. Payments within approved statutory rates (AMAPs) are exempt from Income Tax and National Insurance. Any payment exceeding the approved rates is treated as a taxable benefit in kind (as cash), with Class 1 NIC due on the excess.
Income Tax Liability |
National Insurance Liability |
Immediate, due in full in the next pay period |
Class 1 (Employer & Employee), due in full in the next pay period |
Because this event type attracts Class 1 National Insurance, please read the National Insurance and Income Tax Handling for Payrolled Benefits article.
Working out the Taxable Amount
To calculate the taxable element of mileage allowance payments:
Identify the total business miles travelled for the employee.
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Apply the approved statutory rate for the vehicle type:
Cars/vans: 45p per mile up to 10,000 miles; 25p thereafter
Motorcycles: 24p per mile
Bicycles: 20p per mile
Multiply statutory rate by miles travelled to get the approved amount.
Subtract the approved amount from the actual payment made by the employer.
Any remaining excess is the taxable benefit (Cash Equivalent).
For example:
An employee travels 12,000 business miles in their own car. The employer pays 50p per mile, while the statutory approved rates for Income Tax are:
First 10,000 miles: 45p per mile
Any miles over 10,000: 25p per mile
Step 1: Calculate statutory allowance for Income Tax
First 10,000 miles: 10,000 x 45p = £4,500
Remaining 2,000 miles: 2,000 x 25p = £500
Total statutory allowance = £5,000
Step 2: Calculate actual payment
12,000 x 50p = £6,000
Step 3: Determine taxable excess for Income Tax
£6,000 − £5,000 = £1,000
Step 4: Consider National Insurance
For NIC, all miles are compared to 45p per mile (no 10,000-mile threshold).
NIC exempt amount = 12,000 x 45p = £5,400
Actual payment = £6,000
Taxable NIC excess = £6,000 − £5,400 = £600
Step 5: The Taxable and NIable amounts:
Income Tax: £1,000 excess applied
Class 1 NIC: £600 excess applied
Event Type: Passenger Payments
This Event Type applies when an employee carries other employees on business journeys using their own vehicle, and the employer pays a mileage allowance. Payments up to 5p per passenger mile are exempt from Income Tax and National Insurance. Any amount above this statutory rate is treated as a taxable benefit (as cash), with Class 1 NIC applied to the excess. This can be used alongside Use of own Vehicle.
Income Tax Liability |
National Insurance Liability |
Immediate, due in full in the next pay period |
Class 1 (Employer & Employee), due in full in the next pay period |
Because this event type attracts Class 1 National Insurance, please read the National Insurance and Income Tax Handling for Payrolled Benefits article.
Working out the Taxable Amount
To calculate the taxable element for passenger payments:
Identify the total passenger miles claimed by the employee.
Apply the approved statutory rate (5p per passenger mile).
Multiply statutory rate by passenger miles to get the approved exempt amount.
Subtract the approved amount from the actual payment made by the employer.
Any remaining excess is the taxable benefit (Cash Equivalent).
Enter this value manually into the BIK Module; tax and NIC are then applied automatically.
For example:
An employee carries 4 colleagues for 500 business miles each (total 2,000 passenger miles). The employer pays 6p per passenger mile.
Step 1: Calculate statutory allowance
2,000 x 5p = £100 (exempt portion)
Step 2: Calculate actual payment
2,000 x 6p = £120 (total paid)
Step 3: Determine taxable excess
£120 − £100 = £20
Step 4: Enter taxable benefit
Income Tax is applied to the £20 excess
Class 1 NIC are applied to the £20 excess
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