AMAP vs actual cost for UK SMEs: which to use
UK SMEs can reimburse mileage at the AMAP rate or at actual cost. Here's the decision framework.
The two routes HMRC allows
**AMAP (Approved Mileage Allowance Payments)**: a flat per-mile rate (45p first 10,000 miles, 25p thereafter) that covers fuel, depreciation, insurance, maintenance — everything.[^hmrc-amap-97] Tax-free up to those rates; anything paid above is taxable.
**Actual cost reimbursement**: the employee submits real receipts (fuel, maintenance, insurance, road tax, MOT) and the employer reimburses the business-use portion. Different tax treatment, more admin, sometimes higher payout.
For most SMEs the choice isn't theoretical — it changes year-end tax bills and payroll cadence.
When AMAP wins
AMAP wins when your employees:
- Drive fewer than 10,000 business miles per year (the 45p rate is generous for low-mileage drivers). - Drive average-cost vehicles (1.4–2.0L petrol or diesel). - Want simple monthly reimbursement without receipts.
AMAP also wins for the employer because there's no PAYE / NIC overhead and no class 1A NIC liability when paid at or below the rate. Mileage logs are still required, but receipts are not.
When actual cost wins
Actual cost can outperform AMAP when:
- Annual business mileage exceeds 10,000 miles in a single car (the 25p rate above the threshold can be below real per-mile cost on a high-end vehicle). - The employee drives an EV with fast public charging at premium rates. - The vehicle is a high-cost SUV or van where real depreciation + insurance > AMAP coverage.
The trade-off is administrative: actual cost requires receipts, a business-use log, and an apportionment calculation. SMEs without bookkeeping headcount usually find this too expensive in time.
Worked example: low mileage
Field sales rep, 6,000 business miles/year, Ford Focus 1.5L diesel.
- AMAP: 6,000 × 45p = £2,700 tax-free. - Actual cost: ~£0.32/mile real cost = £1,920 reimbursable.
AMAP pays the employee £780 more, with no PAYE, no NIC, no receipts. AMAP wins clean.
Worked example: high mileage
Regional manager, 18,000 business miles/year, BMW 3-series 2.0L diesel.
- AMAP: (10,000 × 45p) + (8,000 × 25p) = £4,500 + £2,000 = £6,500. - Actual cost: ~£0.42/mile real cost = £7,560 reimbursable; subject to a business-use percentage.
In this case actual cost is £1,060 better for the employee. The employer can also reclaim VAT on the fuel element separately. The catch: receipts and a logbook for every quarter.
VAT recovery — only with AMAP
A point many SMEs miss: with AMAP, the VAT-registered employer can reclaim VAT on the **fuel element** of each AMAP payment, using the HMRC Advisory Fuel Rate (AFR) for the relevant engine and quarter. This requires the employee to retain VAT fuel receipts for at least the cumulative reclaimed amount. With actual cost, VAT is reclaimed directly off the receipt — no AFR involved.
Mixed approach
HMRC permits a mixed approach: AMAP for the fleet by default, with specific employees on actual cost when economically justified. Document both policies in the staff handbook. The classic split is field sales on AMAP, executives with high-end company cars on actual cost.
What to do this month
1. Pull last year's mileage data; sort employees by annual business miles. 2. For anyone above 10,000 miles in one vehicle, run the actual-cost comparison. 3. If the gap is < £500 / year, keep AMAP for simplicity. 4. If the gap is > £1,000, formalise the dual policy in writing and get sign-off from each affected employee.