After years without change, the government has finally announced an increase to the approved mileage allowance for business journeys made in employees’ own cars.
From 6 April 2026, the approved mileage rate for the first 10,000 business miles will rise from 45p to 55p per mile.
For many employees and business owners, this change is long overdue and will provide some welcome support against rising fuel, maintenance and motoring costs.
Here is what the change means in practice and how businesses should respond.
What Is the Mileage Allowance?
The mileage allowance is the amount an employer can reimburse an employee tax free when they use their own vehicle for business travel.
This applies to journeys such as:
Visiting clients
Travelling between business locations
Temporary workplace travel
Business errands or appointments
It does not apply to normal commuting between home and a permanent workplace.
What Has Changed?
The approved mileage allowance for cars has remained frozen at 45p per mile for the first 10,000 business miles since 6 April 2011.
Following pressure from trade unions and ongoing increases in motoring costs, the government has now confirmed a rise.
New mileage allowance rates from 6 April 2026:
55p per mile for the first 10,000 business miles
Existing rates for mileage above 10,000 miles remain unchanged
Motorcycle, bicycle and passenger rates also remain unchanged
The increase will also be backdated to 6 April 2026.
Why This Matters
For employees regularly using their own cars for work, the previous 45p rate had increasingly fallen behind real world costs.
Fuel prices, servicing, insurance and vehicle maintenance have all risen significantly over the last decade. The increase to 55p per mile helps bridge that gap and offers greater tax free reimbursement potential.
What It Means for Employers
Employers can now reimburse employees up to the new approved rate without creating a taxable benefit.
This means:
Reimbursements up to 55p per mile are tax free
No PAYE or National Insurance applies within the approved rate
Businesses can claim corporation tax relief on allowable mileage costs
For businesses already reimbursing below the approved rate, there may now be a larger gap between what is paid and what employees can claim tax relief on personally.
What Happens If Employers Pay Less?
Some businesses choose to reimburse mileage at lower rates.
Where an employee receives less than the approved mileage allowance, they may be able to claim tax relief on the difference through HMRC.
Example:
Approved rate: 55p per mile
Employer pays: 40p per mile
Employee can claim tax relief on the remaining 15p per mile
This relief is normally claimed through:
Self-assessment tax returns, or
HMRC’s online mileage relief process
A Good Time to Review Mileage Policies
With the increase now confirmed, businesses should review:
Employee mileage reimbursement policies
Payroll and expense systems
Company travel procedures
Budget forecasts for travel expenses
Updating policies earlier can help avoid confusion and to ensure staff are reimbursed correctly from the start of the new tax year.
Record Keeping Still Matters
Employees claiming mileage reimbursement or tax relief should continue keeping accurate records of:
Dates of journeys
Business purpose
Start and end locations
Number of miles travelled
Good records make claims easier and provide support if HMRC ever requests evidence.
The Bigger Picture
This increase is a positive step after more than a decade without change. While many will argue the rise still does not fully reflect modern motoring costs, it does provide additional support for employees using their own vehicles for work.
For businesses, it is also a reminder to regularly review expense policies and ensure reimbursements remain fair, practical and tax efficient.
Need Help Reviewing Business Expenses or Mileage Claims?
We support businesses across Stevenage and Hertfordshire with practical advice on expenses, payroll and tax efficient reimbursements.
If you would like help reviewing your mileage policy or understanding what employees can claim, get in touch and we will guide you step by step.
Good record keeping and clear policies can save both time and tax later on.
Want to know more?
You can contact Hammond-Barr accountants on 01438 281281 or via email at [email protected].
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