The 5p passenger rate is a British peculiarity

In Britain it exists only if your employer chooses to pay it. In most other countries it does not exist at all.

What Britain offers

If you are an employee and carry a colleague on a journey that is business travel for both of you, your employer can pay you up to an extra 5p per passenger per mile, tax free, on top of the approved mileage rate. It works in your own car or van or a company one. There is no passenger rate for the self-employed.

Two conditions do most of the work. The passenger has to be a fellow employee, so clients and family do not count. And the journey has to be business travel for them as well as for you, so a colleague you are dropping at home on the way does not qualify.

It is small money per journey and unremarkable per year unless you routinely travel in pairs. Four people in one car (the driver and three colleagues) on a 200-mile round trip is £30 of passenger payments, on a journey already worth £110 at the 55p approved car rate.

The catch that makes it rare

Unlike the main rate, there is no relief mechanism behind it.

If your employer pays below the approved mileage rate, you can claim tax relief on the shortfall through Mileage Allowance Relief. If your employer does not pay the passenger supplement, that is the end of it. You cannot claim relief for it on a return.

So the 5p only exists if your employer has chosen to operate it. Many have never been asked.

Few other countries have one

Austria does: its official Kilometergeld adds 15 cents a kilometre for each passenger, which an employer can pay tax free on top of the 50-cent rate.

Germany used to. The Mitnahmeentschädigung paid a supplement per passenger per kilometre, and the 2014 reform of the travel expense rules removed it. Current German rules carry no passenger supplement.

France, Spain, Ireland, Japan and the United States do not offer one either. The rate is the rate, whoever is in the other seats.

This matters if you drive for work in more than one country, or if you have moved. Assuming the 5p exists because it exists at home is a reliable way to overstate a foreign claim, and it is the kind of error that is invisible until somebody checks.

Recording it

Where an employer does pay the 5p, the usual problem is that nobody wrote down who was in the car.

The mileage is captured automatically by anything competent. The passengers are not, and cannot be: it is a fact about the journey that only the driver knows. If your employer pays it, the passengers have to be recorded on the trip at the time, with the same discipline as the destination and the purpose.

Milometry has a passengers field on the trip for exactly this, and shows the supplement as a separate figure where the scheme has one, ready if your employer pays it. On a scheme that does not, it stays out, because adding 5p to a German claim would be inventing money.

Sources

• Travel, mileage and fuel rates and allowances (HMRC)
• Expenses and benefits: business travel mileage, rules for tax (HMRC)
• Income Tax (Earnings and Pensions) Act 2003, section 233: passenger payments (legislation.gov.uk)
• Employment Income Manual EIM31330: Mileage Allowance Relief (HMRC)
• Business Income Manual BIM75005: simplified expenses for vehicles (HMRC)
• § 5 Bundesreisekostengesetz: Wegstreckenentschädigung
• Kilometergeld (Bundesministerium für Finanzen, Austria)

General information, not tax advice. Check with HMRC or your accountant before relying on the passenger supplement.