Mileage Rate Increase 2026/27: What Business Owners Need to Do Next

For the first time in more than fifteen years, HMRC’s raised the approved mileage rate for cars and vans. If you run a business, employ staff who drive for work, or claim mileage yourself as a director or sole trader, this change is worth understanding properly, not just noting in passing.

The new rate took effect from 6 April 2026, backdated to the start of the 2026/27 tax year, and it affects payroll, expense policies, and tax planning across almost every sector. Here’s what’s changed, what it means for your business, and the practical steps to take next.

 

What’s Changed: The New HMRC Mileage Rates for 2026/27

The headline change is a 10p increase to the main rate for cars and vans, which had been frozen at 45p since 2011. The updated Approved Mileage Allowance Payments (AMAPs) for 2026/27 are:

• Cars and vans: 55p per mile for the first 10,000 business miles, then 25p per mile after that
• Motorcycles: 24p per mile, with no mileage threshold
• Bicycles: 20p per mile, with no mileage threshold
• Passenger payments: an additional 5p per mile per fellow employee carried on a business journey

These are the tax-free rates employers can reimburse without triggering Income Tax or Class 1A National Insurance liabilities. They apply to employees, company directors, and self-employed individuals using their own vehicle for qualifying business travel, and they’re separate from the Advisory Fuel Rates that apply to company cars.

 

Why the Rate Has Increased

The 45p rate had stayed the same since 2011, despite fifteen years of rising fuel costs, insurance premiums, and vehicle maintenance charges. The increase brings the rate broadly in line with inflation and the real-world cost of running a vehicle for work. For many businesses and their staff, it’s a welcome and overdue adjustment, even if it does mean a bit of admin in the short term.

 

What This Means for Your Business

Employers and Payroll Teams

If your business reimburses staff for business mileage, your payroll processes and expense policies need to reflect the new rate from 6 April 2026. Any mileage already paid this tax year at the old 45p rate should be reviewed, as employees may be entitled to a backdated top-up.

It’s also worth checking your written expense policy. If it references a fixed pence-per-mile figure rather than “the current HMRC approved rate,” it’ll need updating so you’re not left administering an outdated policy every time rates change.

This sits alongside several other payroll updates coming into effect this tax year, from National Minimum Wage increases to changes in Statutory Sick Pay. Many businesses use our outsourced payroll services to keep on top of exactly this kind of change without adding to their own admin burden.

Company Directors

Directors using their own vehicle for business journeys can claim mileage in the same way as employees, and the company usually receives Corporation Tax relief on the amount reimbursed. With the rate now considerably higher, mileage claims can be a more meaningful and tax-efficient way to extract value from the business, provided journeys genuinely qualify as business travel rather than ordinary commuting.

Self-Employed and Sole Traders

If you’re self-employed and use HMRC’s simplified expenses method, the new 55p/25p rates apply to you too. This is often simpler than tracking individual costs like fuel, servicing, and insurance separately, though it’s worth checking which method gives you the better outcome for your circumstances as part of your wider self-assessment and personal tax planning.

Five Steps to Take Now

1. Update your mileage rate references. Check payroll software, expense forms, and any written policy documents so they reflect 55p/25p for cars and vans.
2. Review claims already submitted this tax year. Anyone paid at 45p per mile since 6 April 2026 may be owed a top-up.
3. Communicate the change to staff. Employees may not be aware the rate’s increased, particularly if your payroll process is largely automated.
4. Check your record-keeping. HMRC expects contemporaneous mileage logs showing dates, destinations, purpose, and total miles for each journey. Weak records are one of the most common issues raised in enquiries.
5. Revisit your wider expense policy. If mileage reimbursement is bundled with car allowances or other benefits, it’s worth a proper review to make sure the tax treatment is still correct. Our business tax planning team can help you work through this alongside other year-end considerations.

Common Mistakes to Avoid

• Double-claiming costs. The mileage rate already covers fuel, insurance, servicing, and wear and tear, so these shouldn’t be claimed again as separate expenses.
• Confusing AMAPs with Advisory Fuel Rates. AMAPs apply to personal vehicles used for business; AFRs apply only to company cars. Mixing the two up is a common and costly error.
• Treating commuting as business mileage. Ordinary travel between home and a permanent workplace still doesn’t qualify, regardless of the new rate.
• Letting policy documents fall out of date. A static pence-per-mile figure in an old handbook can quietly become non-compliant the moment rates change.

If your business also manages a wider workforce, it’s worth checking whether other people-related policies need a refresh at the same time. Our HR advisory team can help review employment contracts, expense policies, and staff handbooks so everything stays consistent.

A Reminder for EV Owners and Fleets

If you drive an electric vehicle for business, or manage a fleet of EVs, this particular rate increase doesn’t change much day-to-day, since HMRC’s approved mileage rates already apply the same 55p/25p structure to electric and hybrid cars as to petrol and diesel. But it’s a useful moment to flag a related change that’s coming further down the line.

At the Autumn Budget on 26 November 2025, Chancellor Rachel Reeves confirmed a new road charge for electric and plug-in hybrid vehicles, known as Electric Vehicle Excise Duty (eVED). From April 2028, EV drivers will pay 3p per mile, and plug-in hybrid drivers 1.5p per mile, on top of standard Vehicle Excise Duty. As an example, a fully electric vehicle covering 8,500 miles a year would face a road charge of roughly £255 once the scheme takes effect. We covered this, along with the other headline changes from the Budget, in our Autumn Budget breakdown.

For businesses in haulage, transport, or logistics, or those with company EV fleet arrangements, now’s a sensible time to start factoring this into longer-term vehicle and cost planning. April 2028 may feel a way off, but reviewing fleet strategy and total cost of ownership in good time can help you avoid surprises later, and keep any lease or replacement cycles aligned with the change.

Looking Ahead

The rate increase is a useful reminder to look at travel and expense policies more broadly, not just the headline figure. Businesses moving towards electric vehicle fleets, for example, may want to keep a close eye on how EV-specific costs are treated, since the current AMAP rates don’t distinguish between fuel types. We’ll be covering electric vehicle mileage claims: what’s changing and Advisory Fuel Rates for company cars: a complete guide in upcoming articles, so keep an eye on our insights hub for updates.

In the meantime, if you’d like help reviewing your payroll processes, expense policies, or director mileage claims in light of the new rates, book a free payroll consultation with our team, or get in touch to discuss how the change affects your specific circumstances.

 

FAQS

What’s the new HMRC mileage rate for 2026/27?
From 6 April 2026, the approved mileage rate for cars and vans is 55p per mile for the first 10,000 business miles, dropping to 25p per mile after that. Motorcycles remain at 24p per mile and bicycles at 20p per mile.

When did the mileage rate increase take effect?
The increase applies from 6 April 2026, the start of the 2026/27 tax year, and has been backdated to that date even though it was formally confirmed later in the year.

Do employers have to pay the full 55p per mile?
No. Employers can set their own reimbursement policy. However, if they pay less than the approved rate, employees may be able to claim Mileage Allowance Relief on the difference through Self Assessment.

Can directors claim the new mileage rate?
Yes. Directors using their own vehicle for genuine business journeys can claim mileage at the same rates as employees, and the company can usually claim Corporation Tax relief on the amount paid.

Does commuting count as business mileage?
No. Ordinary travel between home and a permanent workplace is not considered business mileage under HMRC rules, regardless of the rate change.

Have motorcycle and bicycle mileage rates changed?
No. Only the rate for cars and vans has increased. Motorcycles remain at 24p per mile and bicycles at 20p per mile, both with no mileage threshold.

Is the mileage rate different for electric vehicles?
No. Employees and directors using their own electric or hybrid car for business travel follow the same 55p/25p structure as petrol and diesel vehicles under the AMAP rules.