HMRC mileage allowance 2026: What the new 55p Rate means

In a welcome move for employees and businesses alike, HMRC has increased the Approved Mileage Allowance Payment (AMAP) rate for cars and vans from 45p to 55p per mile for the first 10,000 business miles travelled in a tax year. The change takes effect from 6 April 2026 and represents the first increase in the rate since 2011.

EVERYTHING YOU NEED TO KNOW ABOUT HMRC MILEAGE ALLOWANCE 2026

The HMRC Mileage Allowance 2026 Increase – Why?

A Much-Needed Update

The previous 45p rate had remained unchanged since 2011 despite substantial increases in fuel, insurance, maintenance and vehicle ownership costs. HMRC’s decision to increase the rate to 55p per mile therefore provides a more commercially realistic contribution towards the costs employees incur when using their own vehicles for business travel.

New HMRC Mileage Rates from 6 April 2026

Understanding the New Rates

• 55p per mile for the first 10,000 business miles in the tax year
• 25p per mile for any business mileage above 10,000 miles

Employers do not have to pay these rates, although they represent the maximum tax-free reimbursement level. Payments above these levels may create tax consequences, while employees may be able to claim relief where lower rates are paid.

Should Employers Increase Their Mileage Rates?

An Opportunity for Employers

While employers are not required to increase their reimbursement rates, many organisations may see this as an opportunity to review their approach.

The increase provides a mechanism for enhancing employee support without increasing base salary costs. Unlike salary increases, mileage payments made within HMRC’s approved limits can generally be paid free of Income Tax and National Insurance Contributions, making them particularly valuable for employees who undertake significant business travel.

The practical impact can be meaningful. An employee undertaking 7,500 business miles per year would have previously been able to receive up to £3,375 tax-free under the 45p rate. Under the new 55p rate, this increases to £4,125 – an additional £750 per year. As the payment is made free of Income Tax and NIC (provided the relevant conditions are met), the full £750 increase goes directly into the employee’s pocket rather than being reduced by payroll deductions.

In an environment where many employers continue to face pressure around salary reviews and cost-of-living support, the increased mileage allowance provides an alternative way to deliver additional value to employees who regularly travel for business. For organisations with large populations of field-based workers, this may form part of a broader reward and retention strategy.

However, employers must balance employee expectations against commercial realities. A 10p per mile increase represents a 22% rise in the approved rate and could result in a significant increase in expense costs for businesses with highly mobile workforces. Any decision to increase reimbursement rates should therefore be considered alongside wider reward strategies, budgeting exercises and workforce planning initiatives.

Mileage Claims and HMRC Compliance

Controls Have Never Been More Important

While the increased rates will be welcomed by many employees, employers should not overlook the compliance considerations that accompany the change.

HMRC has historically scrutinised travel and subsistence expenses as part of employer compliance reviews, with business mileage frequently forming part of the review process. In our experience, HMRC will typically expect employers to demonstrate not only that mileage has been reimbursed at the correct rate, but also that appropriate evidence exists to support the underlying journeys and confirm they qualify as business travel.

As reimbursement rates increase, so too does the potential cost of inaccurate or unsupported claims. Employers should therefore ensure mileage claims are supported by robust records, including journey dates, destinations, business purpose and mileage undertaken. Appropriate approval workflows, periodic reviews and exception reporting can all help strengthen the control environment.

Updating Expense Systems and Travel Policies

Many organisations may also face practical challenges in implementing the new rates. Expense management systems are often configured around existing reimbursement rates and may require updates to accommodate the revised 55p rate. For larger employers operating multiple travel policies, implementation can be even more complex where different reimbursement methodologies apply across the workforce.

Company Cars, Private Vehicles and Advisory Fuel Rates

Particular care should be taken where employees use a mixture of private vehicles and company cars. The revised AMAP rate applies only where employees are undertaking business travel in their own privately-owned vehicles. Employees using company cars should generally fall within HMRC’s Advisory Fuel Rate framework instead. Ensuring expense systems can accurately distinguish between these scenarios is critical to preventing overpayments, underpayments and potential tax compliance issues.

Electric Vehicle Salary Sacrifice Schemes

The growing popularity of electric vehicle salary sacrifice arrangements adds a further layer of complexity. Employees may perceive these vehicles as their own given they select and use the vehicle on a day-to-day basis. However, where the vehicle is provided under a company car arrangement, employers will typically need to apply Advisory Fuel Rates rather than the Approved Mileage Allowance Payments regime. Clear employee guidance and robust system controls are therefore essential.

Reviewing Travel and Expense Policies

Employers considering an increase in reimbursement rates should also review their travel and expenses policies. Policies should clearly set out the rates applicable to different vehicle types, the records employees are required to maintain, approval requirements and the distinction between qualifying business travel and ordinary commuting. Updating policies at the same time as implementing any rate increase can help ensure consistency, support compliance and minimise future disputes.

What the HMRC Mileage Rate Increase Means for Employers

Looking Ahead

Many employers and advisers will see this as a positive sign that Government may be willing to review other tax-free allowances that have remained unchanged for significant periods. The increase is a welcome development and provides employers with an opportunity to revisit travel and expense policies while supporting employees in a tax-efficient manner.

If you have any queries about these changes, please do not hesitate to get in contact with Niamh McKenna, a member of the Payroll team, or your usual AAB contact.