From 6 April 2026 (which works retroactively), the rate for cars and vans has risen from 45p to 55p per mile for the first 10,000 business miles in the tax year.
After 15 years of rising fuel, insurance, servicing and general motoring costs, this is a positive and practical change which should make business mileage claims fairer and more reflective of the real cost of travel.
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Topics Discussed:
- The increase in the Approved Mileage Allowance Payment rate from 45p to 55p per mile.
- How the new rules affect employees, employers, directors and the self-employed.
A Welcome Increase to Business Mileage Rates
On 21 May, the Chancellor announced that the Approved Mileage Allowance Payment rate would increase from 45p to 55p per mile for employees using their own cars or vans for business travel.
The new rate applies from 6 April 2026 and covers the first 10,000 business miles travelled in the tax year.
This is significant, as the previous rate had remained unchanged for 15 years.
During that time, vehicle running costs have increased considerably, with many employees and business owners absorbing more of the cost themselves.
The increase gives employers greater scope to reimburse staff tax-free, while allowing employees to receive a more realistic contribution towards using their own vehicle for work.
For businesses relying on staff travel to clients, sites or temporary workplaces, the change should make mileage policies more commercially reasonable.
How the New 55p Business Mileage Rates Work
The approved mileage rates set the amount that an employer can reimburse an employee for qualifying business travel without creating an income tax or National Insurance charge.
For cars and vans, the rate is now 55p per mile for the first 10,000 business miles. Once an employee exceeds 10,000 business miles, the income tax rate remains 25p per mile.
An employee who drives 8,000 business miles in their own car during the 2026-27 tax year could therefore be reimbursed up to £4,400 tax-free.
Where an employer pays less than the approved rate, the employee may be able to claim tax relief on the shortfall.
If an employer continues to reimburse mileage at 45p per mile, the employee may be able to claim tax relief on the additional 10p per mile for qualifying business journeys.
Employers should review policies, payroll systems and expenses software promptly to ensure claims are dealt with correctly.
The Position after 10,000 Miles
Although the headline increase is welcome, the income tax rate after the first 10,000 business miles remains unchanged at 25p per mile.
The greatest benefit will therefore be felt by those whose annual business mileage falls within the first 10,000 miles.
There is, however, an important National Insurance distinction. For National Insurance purposes, the car and van mileage rate remains 55p per mile even after 10,000 business miles have been exceeded.
Employers should ensure payroll teams, bookkeepers and expenses systems are updated correctly.
What This Means for The Self-Employed
The increase also applies to the simplified expenses regime for the self-employed in 2026-27.
This means that self-employed individuals using cars or goods vehicles can claim 55p per mile for the first 10,000 business miles, with the rate then reducing to 25p per mile for mileage above that level.
For many sole traders and small business owners, the simplified mileage basis is attractive because it avoids the need to calculate the business proportion of actual vehicle costs.
Instead of analysing fuel, repairs, insurance, servicing and other motoring expenses, the taxpayer can apply a fixed rate to qualifying business mileage.
The higher rate makes simplified mileage more appealing, particularly for those who make moderate use of business mileage rates and relatively straightforward vehicle use.
However, it should not be assumed that simplified mileage is always the most tax-efficient approach.
Where vehicle costs are high, or where the business use of the vehicle is more complex, it may still be worthwhile comparing the simplified mileage claim with a claim based on actual expenses.
The right approach will depend on the specific facts, including the type of vehicle, annual mileage, running costs and how the vehicle is used within the business.
Practical steps for employers
Employers should now review mileage policies and update any reference to the previous 45p rate.
Expense claim forms, payroll software, accounting systems and internal guidance should also be checked so that the new rate is applied correctly.
As the increase applies from 6 April 2026, businesses should consider whether claims already submitted for the current tax year need to be corrected or topped up, particularly where employees have already been reimbursed at the old rate.
Employers should also remind staff what qualifies as business mileage.
Ordinary commuting between home and a permanent workplace is not normally allowable.
Qualifying business travel will usually involve journeys made in the performance of employment duties or travel to a temporary workplace.
Accurate records remain essential. Employees should retain details of the date, destination, reason for travel and number of business miles.
VAT Reclaim on Fuel
For VAT-registered businesses, there may also be a further point to consider in relation to fuel.
Where employees are reimbursed for business mileage, the business may be able to reclaim VAT on the fuel element of the mileage payment, provided it holds suitable VAT receipts and the claim is calculated correctly.
HMRC accepts advisory fuel rates when calculating the fuel element, but businesses should not treat the whole mileage payment as VAT-inclusive fuel cost.
This can be a useful additional recovery point where mileage claims are frequent, but it must be supported by proper records.
Summary
Our view is that this is a positive change and a clear step in the right direction.
It recognises that employees and business owners have faced higher motoring costs for many years, while the official mileage rate had remained static.
It may not address every concern for high-mileage workers, particularly where the 25p rate continues after 10,000 miles, but it does provide meaningful support and a more practical framework for many business drivers.
Employers should review mileage policies, update internal systems, check whether any backdated claims are due and ensure staff keep suitable records.
The self-employed should also consider whether simplified mileage remains the best approach, or whether actual expenses may produce a better result.
If you are considering the most tax-efficient way to run a company car, or need assistance reclaiming mileage correctly, now is the time to take advice.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel
