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Tax tip #10 – Tax-free passenger payments

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5 minute read.

Employers can also pay a tax-free allowance to employees who give lifts to passengers for whom the journey is also a business journey.   

The approved amount is found by the formula  M x R  


  • M is the number of miles of business travel by the employee by car or van for which the employee carries one or more passengers for whom the travel is business travel and in respect of whom passenger payments are made; and  
  • R is the rate of 5p per mile.  

Any passenger payments made in excess of the approved amount are taxable and must be returned on the employee’s P11D.  

However, if the employer does not make passenger payments or makes them at a rate less than the approved amount, the employee is not able to claim tax relief for the shortfall.  


Joe frequently uses his car for business journeys. His employer encourages car sharing.  

In 2018/19 he gave lifts to Matt in respect of journeys totalling 3,000 business miles, to Ellie in respect of business journeys totalling 570 business miles and to Kalim in respect of business journeys totalling 2,400 business miles.  

Joe’s employer can make tax-free passenger payments of £150 (3,000 miles @ 5p per mile) in respect of the lifts given to Matt, £28.50 (570 @ 5p per mile) in respect of the lifts given to Ellie and £120 (2,400 miles @ 5p per mile) in respect of the lifts given to Kalim – a total tax-free payment of £298.50.  

From the employer’s perspective it is much cheaper to encourage car-sharing and to pay passenger payments of 5p per mile than for each employee to take their own car and for the employer to make mileage payments of 45p per mile.

For example, if four employees need to undertake a round trip of 100 miles to attend a meeting, and the employer pays mileage allowances using the approved rates, it would cost the employer £180 (4 x (100 miles @ 45p)) if each employee took their own car and none had driven more than 10,000 business miles in the tax year.

By contrast, if one employee drives and gives a lift to the other three employees and the employer pays a mileage allowance and three passenger payments, the cost to the employer is only £60 (£45 mileage allowance plus 3 passenger payments of £5) – a saving of £120 for the trip. Over the employee base for a complete tax year, this can generate significant savings. 

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