HMRC Mileage Rates Increase to 55p Per Mile - What It Means for Employers and Employees.

The government has announced a significant increase to the Approved Mileage Allowance Payment (AMAP) rate for employees using their own vehicles for business journeys. From 6 April 2026, the approved rate for cars and vans has increased to 55p per mile for the first 10,000 business miles, with the change backdated to the start of the 2026/27 tax year.   The 25p per mile rate for miles in addition to 10,000 remains the same.

This is the first major increase in many years and will be welcome news for employees and business owners alike.

Who Can Claim Mileage?

The approved mileage rate applies when:

• An employee uses their own vehicle for qualifying business journeys

• The journey is wholly and exclusively for business purposes

• The employer reimburses mileage expenses

• The employee is claiming tax relief on mileage not fully reimbursed by their employer

It's important to remember that ordinary commuting between home and a permanent workplace does not qualify as business mileage.

Examples of qualifying journeys include:

• Visiting clients

• Travelling to temporary workplaces

• Travelling between business locations

• Attending meetings away from the normal place of work

What Does This Mean for Business Owners?

For business owners and directors who use their personal vehicle for business travel, mileage claims remain one of the simplest and most tax-efficient ways to recover motoring costs.

For example, 10,000 business miles at 55p per mile creates a tax-deductible business expense of £5,500. If you're operating through a limited company, those mileage payments can generally be withdrawn without additional tax, provided they are within HMRC's approved limits.

The approved rate is designed to cover:

• Fuel

• Insurance

• Vehicle maintenance

• Repairs

• Depreciation

• General running costs

This means these costs are effectively included within the mileage allowance rather than being claimed separately.

Do Employers Have to Pay 55p Per Mile?

No.

The HMRC approved mileage rate represents the maximum amount that can generally be paid tax-free. Employers remain free to decide their own mileage reimbursement policy.

Employers may choose to:

• Pay the full approved rate

• Pay less than the approved rate

• Pay more than the approved rate

The amount paid will often depend on company budgets, industry practice and recruitment considerations.

What Happens if You Pay More Than 55p Per Mile?

Employers can choose to pay a higher mileage rate if they wish.

However, any amount paid above HMRC's approved rate is normally treated as taxable earnings. The excess amount should be processed through payroll and may be subject to PAYE and National Insurance.

For example:

• Employer pays 60p per mile

• HMRC approved rate is 55p per mile

• The additional 5p per mile would generally be taxable

Businesses considering enhanced mileage rates should ensure their payroll processes are set up correctly.

What Happens if You Pay Less Than 55p Per Mile?

Many employers reimburse mileage below HMRC's approved rate.

Where this happens, employees may be entitled to claim Mileage Allowance Relief (MAR) on the shortfall. HMRC provides tax relief on the difference between the approved rate and the amount actually reimbursed.

For example:

• Employer pays 45p per mile

• Approved rate is 55p per mile

• Employee may claim tax relief on the 10p difference

The actual benefit depends on the employee's tax rate rather than the full value of the shortfall.

What About Company Cars?

The new 55p mileage rate applies to employees using their own vehicle for business travel.

If you drive a company car, different rules apply.

HMRC uses Advisory Fuel Rates (AFRs) for company cars. These rates are reviewed regularly and vary according to factors such as:

• Fuel type

• Engine size

• Vehicle efficiency

• Whether the vehicle is petrol, diesel, hybrid or electric

The purpose of AFRs is to help employers reimburse the fuel cost of business journeys undertaken in a company vehicle, rather than covering the wider running costs associated with owning a vehicle. HMRC updates these rates periodically to reflect changing fuel and energy costs.

For electric company cars, HMRC also publishes separate advisory electricity rates which may differ depending on charging arrangements.

Because these rates change regularly, employers should always refer to the latest HMRC guidance before calculating company car mileage reimbursements.

Further HMRC Guidance

You can find the latest official information on:

• Approved Mileage Allowance Payments (AMAPs) 

• Advisory Fuel Rates for Company Cars 

Should You Review Your Mileage Policy?

With the increase to 55p per mile, now is a good time for businesses to review their mileage reimbursement policies.

Questions to consider include:

• Are employees being reimbursed fairly?

• Does your current rate remain competitive?

• Are payroll processes correctly handling any excess payments?

• Are directors and business owners maximising available tax relief?

• Does your company car policy align with the latest HMRC guidance?

At P&L Accountancy & Bookkeeping, we can help you understand how the new mileage rules affect your business and ensure you're claiming the reliefs available while remaining compliant with HMRC requirements.

If you'd like advice on mileage claims, directors' expenses, payroll implications or company car reimbursements, get in touch with our team.