HMRC’s approved mileage rate for cars and vans has increased from 45p to 55p per mile for the first 10,000 qualifying business miles in a tax year. The change applies to the 2026/27 tax year and has been backdated to 6 April 2026, even though the increase was announced in May. It is the first change to the main rate since 2011.
The increase affects employees and directors who use their own vehicles for business journeys, employers that reimburse those journeys, and sole traders or qualifying partnerships using simplified mileage expenses.
The rules are not identical for everyone. Employers are not legally required to reimburse staff at the full HMRC rate, and payments above the approved amount do not automatically create a Class 1A National Insurance liability. The tax and National Insurance calculations also use different mileage thresholds in some circumstances.
Understanding those distinctions is essential before updating payroll, expense policies or Self Assessment estimates.
What Has Changed From 6 April 2026
The approved mileage rates for employees using their own vehicles are:
| Vehicle type | First 10,000 business miles | Business miles over 10,000 |
|---|---|---|
| Cars and vans | 55p per mile | 25p per mile |
| Motorcycles | 24p per mile | 24p per mile |
| Bicycles | 20p per mile | 20p per mile |
The 55p rate applies only to the first 10,000 qualifying car or van miles. The rate after 10,000 miles remains 25p.
The motorcycle and bicycle rates are unchanged. Employers can also pay an additional tax-free passenger rate of 5p per mile when an employee carries another employee on a qualifying business journey in a car or van.
These rates apply to business journeys, not ordinary commuting between home and a permanent workplace. Travel to a temporary workplace may qualify, subject to HMRC’s business-travel rules.
What Sole Traders Need to Do
Sole traders and eligible partnerships can use simplified expenses instead of calculating the actual business proportion of vehicle costs.
For 2026/27, the simplified rates are:
- 55p per mile for the first 10,000 business miles in a car or goods vehicle.
- 25p per mile after 10,000 miles.
- 24p per mile for motorcycles.
Limited companies cannot use the self-employed simplified expenses rules. A company director using a personally owned vehicle is instead dealt with under the employee mileage allowance rules.
The mileage rate covers the normal costs of owning and running the vehicle, including fuel, servicing, repairs, insurance, vehicle tax and depreciation. You cannot claim those actual costs separately for the same vehicle when using the mileage method. Parking, tolls and congestion charges incurred wholly for business may generally be considered separately.
You also cannot use simplified mileage for a vehicle if you have already claimed capital allowances for it or included its purchase as an expense. Once the mileage basis has been adopted for a vehicle, it must normally be used consistently for as long as that vehicle remains in the business.
Our guide to small business bookkeeping records explains what supporting information businesses should retain and how long those records should be kept.
How Much More Can a Sole Trader Claim?
Consider a sole trader who drives 8,000 qualifying business miles during 2026/27.
At the previous 45p rate, the deduction would have been:
8,000 × 45p = £3,600
At the new 55p rate, the deduction is:
8,000 × 55p = £4,400
That is an additional deductible expense of £800.
For a basic-rate taxpayer, the Income Tax reduction may be £160. If the additional deduction also falls within profits charged to Class 4 National Insurance at 6%, it may save a further £48, producing a combined potential saving of £208.
The actual benefit depends on the trader’s taxable profits, personal allowance, Income Tax band and National Insurance position. The Self-Employed Tax Calculator can provide an initial estimate, while a personal tax services specialist can calculate the position using your full income and expenses.
Keep a Proper Mileage Log
A mileage claim should be supported by records showing:
- The date of the journey.
- The starting point and destination.
- The business reason for travelling.
- The number of business miles.
- Any reimbursement received from an employer.
The record should be created at or close to the time of the journey. Trying to reconstruct a full year’s business mileage from memory is unreliable and may leave the claim vulnerable if HMRC asks for evidence.
A spreadsheet, mileage application or integrated accounting expense tool can all be suitable. What matters is that the information is complete and distinguishes business travel from commuting and private journeys.
Our bookkeeping checklists for UK small businesses include travel records within the regular bookkeeping process. Our guide to how often a small business should update its bookkeeping explains why monthly or weekly record maintenance is safer than dealing with everything at year end.
What Employers Need to Do
Employers should review their reimbursement policies, payroll treatment and expense systems following the increase.
However, the HMRC-approved rate is not a statutory minimum that every employer must pay. An employer can continue reimbursing at 45p, 40p or another contractual rate if its policy allows. The employee may then be able to claim tax relief on the difference between the employer’s payment and HMRC’s approved amount.
Employers that want to reimburse at the maximum tax-free Income Tax rate should update their policy to 55p for the first 10,000 qualifying car or van miles and 25p thereafter.
The practical steps include:
- Updating written expense policies.
- Changing mileage rates in payroll and expense software.
- Reviewing reimbursements made since 6 April 2026.
- Checking whether employees were taxed on payments that are now within the increased approved amount.
- Communicating clearly that ordinary commuting does not qualify.
- Retaining mileage logs and approval records.
HMRC has said employers that reimbursed above the old rate and deducted Income Tax or National Insurance in April or May 2026 may need to rerun payroll to reflect the backdated increase.
A Stockport payroll services provider can review how the backdated change affects reimbursements already processed.
Payments Below the Approved Amount
If an employer pays less than the approved amount, there is no taxable benefit and nothing needs to be reported merely because the payment is below the HMRC rate.
The employee may claim Mileage Allowance Relief on the shortfall. This is tax relief, not reimbursement of the missing mileage payment.
For example, suppose an employee drives 6,000 qualifying business miles and is reimbursed at 40p per mile.
The approved amount is:
6,000 × 55p = £3,300
The employer pays:
6,000 × 40p = £2,400
The shortfall eligible for relief is:
£3,300 − £2,400 = £900
A basic-rate taxpayer may receive £180 of tax relief. A higher-rate taxpayer may receive £360, assuming the full deduction attracts relief at those rates.
The employee does not receive the whole £900 from HMRC. They receive tax relief based on their marginal rate.
Payments Above the Approved Amount
If an employer pays more than the Income Tax-approved amount, the excess is taxable.
Employers should generally add the taxable excess to the employee’s pay and deduct PAYE Income Tax. Where an amount has not been taxed through payroll, it may need to be reported through the appropriate P11D process.
For example, paying 60p per mile for the first 10,000 miles creates a taxable excess of 5p per mile for Income Tax purposes. After the employee has completed 10,000 business miles in the employment, the approved Income Tax amount falls to 25p, so a continuing payment of 60p creates a taxable excess of 35p per mile.
Employers should not assume that every payment above the approved amount is subject to Class 1A National Insurance. Mileage payments are normally relevant motoring expenditure, and Class 1 National Insurance rules apply to payments above the National Insurance qualifying amount.
From 6 April 2026, the National Insurance qualifying rate for cars and vans is 55p for every qualifying business mile, rather than reducing to 25p after 10,000 miles. This means the Income Tax and National Insurance calculations can produce different results after the first 10,000 miles.
Our guide to employer NI rates explains the current Class 1 rates, and the Employer NI Calculator can help estimate payroll costs.
The P11D Position
The 55p increase does not mean all payments of up to 55p are automatically exempt for the whole year.
For Income Tax, the approved amount for cars and vans is:
- 55p for the first 10,000 miles.
- 25p for each subsequent mile.
If the employer pays no more than the cumulative approved amount, no taxable excess arises.
If an excess has already been taxed through payroll, employers should avoid taxing or reporting the same amount twice. If it has not been taxed at source, P11D reporting may be needed under HMRC’s mileage allowance rules.
This is distinct from the treatment of many benefits in kind that attract Class 1A National Insurance. Mileage allowance excesses are generally considered under PAYE and Class 1 National Insurance rules.
Directors Using Their Own Vehicles
Company directors using their personally owned car or van for qualifying company business are covered by the employee mileage rules.
The company can reimburse:
- 55p per mile for the first 10,000 business miles.
- 25p per mile thereafter.
Payments within the approved amount are normally tax-free for the director and deductible when calculating the company’s taxable profits.
Because the increase has been backdated to 6 April 2026, a company that reimbursed a director at 45p during April or May can consider paying an additional 10p per qualifying mile for those journeys. The top-up should be supported by mileage records and entered properly in the company’s accounts.
A corporation tax return service can ensure reimbursements are treated correctly. Our guide to how to reduce corporation tax covers other legitimate business deductions, and the Corporation Tax Calculator can provide an initial estimate of the tax effect.
Mileage and Directors’ Loan Accounts
Directors sometimes pay business travel personally and credit the reimbursement to their director’s loan account rather than transferring cash immediately.
That is acceptable if the mileage claim is genuine, documented and entered correctly. The accounting record should clearly distinguish expense reimbursement from salary, dividends or personal drawings.
A poorly documented credit to a loan account may be difficult to defend as a tax-free mileage reimbursement. Our guide to directors loan accounts explains how company payments, credits and withdrawals should be recorded.
Claiming Mileage Relief as an Employee
Employees do not always need to complete a Self Assessment return solely to claim mileage relief. Depending on the amount and their wider tax position, they may be able to claim through HMRC’s employment expenses service or form P87.
Self Assessment may be appropriate where the employee already files a return or where the overall expense claim requires it.
Our guide to UTR numbers explains registration for Self Assessment, while our personal tax services team can advise on the most appropriate claim route.
A P60 records taxable employment pay and deductions. Tax-free mileage reimbursements are not normally included as salary, so the employee must retain the separate mileage and employer-payment records needed to support the relief claim.
Sole Traders and National Insurance
For sole traders, simplified mileage reduces taxable business profit. It can therefore reduce both Income Tax and Class 4 National Insurance where the deduction falls within profits otherwise subject to those charges.
The mileage payment itself is not a separate receipt or benefit. It is simply an alternative way of calculating the allowable business cost of operating the vehicle.
Our guide to self-employed National Insurance explains how Class 4 contributions are calculated from taxable profits.
Using Xero to Track Mileage
Mileage can be recorded through expense-management features and connected applications within Xero cloud accounting.
Businesses should check that any configured mileage rates have been updated for journeys from 6 April 2026. Do not assume that every software account or third-party mileage app has automatically applied the backdated change.
The records should distinguish:
- Journeys before and after 6 April 2026.
- Cars and vans from motorcycles or bicycles.
- Mileage within and above the 10,000-mile Income Tax threshold.
- Business mileage from commuting and private travel.
- Amounts reimbursed from amounts still owed.
Our guide to how Xero can make it easier to stay on top of cash flow explains the wider benefits of integrated expense records. A bookkeeping service for small business can also reconcile mileage claims against company payments and payroll records.
Management Accounts and Travel Costs
For businesses with mobile teams, the increased reimbursement rate may raise travel costs noticeably.
A monthly management accounts service can show whether mileage expenses have increased because of the higher rate, greater travel volumes or both. This helps directors distinguish a tax-rate change from an underlying change in staff behaviour or operational costs.
How management accounts help directors control business spending explains how monthly reporting supports those decisions. Our guide to management accounts vs year-end accounts explains why waiting until the annual accounts are prepared may be too late to manage a growing travel budget.
Updating Your Expenses Policy
A written expenses policy should state:
- The reimbursement rate used by the employer.
- Whether the rate changes after 10,000 miles.
- What counts as qualifying business travel.
- That ordinary commuting is excluded.
- What information employees must provide.
- Whether prior approval is required.
- How passenger payments, parking and tolls are treated.
- How quickly claims must be submitted.
An employer can choose to pay less than 55p, but the policy should make this clear. It should not suggest that HMRC’s approved rate is an automatic contractual entitlement unless the employment contract or company policy actually provides that entitlement.
If you are hiring staff, what employers need to know before hiring their first employee covers the wider payroll and employment responsibilities.
Working with accountants Stockport businesses trust can help ensure the payroll, expense and corporation tax treatment remains consistent.
Frequently Asked Questions
When did the 55p rate take effect?
It applies from 6 April 2026 and was announced with retrospective effect in May 2026. Employers may need to review April and May reimbursements and payroll deductions.
Does 55p apply to every car or van mile?
No. For Income Tax, it applies to the first 10,000 qualifying business miles. The rate then falls to 25p. For employer National Insurance calculations, the qualifying rate is 55p for every business mile.
Must an employer reimburse at 55p?
No. The rate is the maximum approved amount for tax purposes, not a statutory minimum payment. The employer’s contractual or expenses policy determines what it pays.
What happens if my employer pays less?
You may be able to claim tax relief on the difference between the approved amount and what you received. HMRC does not normally reimburse the whole difference.
Can a sole trader claim the new rate?
Yes. Eligible sole traders and qualifying partnerships using simplified expenses can claim 55p for the first 10,000 miles and 25p thereafter for cars and goods vehicles.
Can I claim fuel and repairs as well?
Not if you are using simplified vehicle expenses for that vehicle. The mileage rate already covers normal running and ownership costs.
Can I switch from mileage to actual vehicle costs?
Once the mileage basis is adopted for a vehicle, it must generally continue while that vehicle remains in the business. A change can normally be made when the vehicle is replaced.
Does the 10,000-mile threshold cover all my jobs?
For employees, each separate, unassociated employment normally has its own 10,000-mile threshold. Mileage in associated employments is combined. Multiple cars or vans used in the same employment share one threshold.
Does the change affect company-car advisory fuel rates?
No. Advisory fuel rates for company cars are separate and are updated periodically by HMRC. The 55p rate applies when an employee or director uses their own car or van.
Make Sure You Are Claiming the Right Rate
The increase to 55p per mile is a valuable change for many business drivers, but it also exposes several common misunderstandings. Employers do not have to pay the full rate, tax and National Insurance use different calculations, and sole traders cannot combine simplified mileage with actual vehicle running costs.
At U&W Chartered Accountants, we help sole traders, directors and employers across Stockport and the wider UK manage Self Assessment, payroll, business expenses and company tax correctly.
Find out more on our about page or reach us through our contact page. Request an instant quote as a sole trader or for your limited company to get started.
