Navigating the historic 55p rate increase
Navigating business expenses is about to look a lot different for UK companies and their mobile workforces. For the first time in over a decade, the government has announced a major overhaul to HMRC mileage rates for the 2026/27 tax year, lifting the long-frozen 45p Approved Mileage Allowance Payment (AMAP) up to 55p per mile. While this represents a welcome, long-overdue financial relief for employees racking up business miles in their personal vehicles, it also hands employers a pressing to-do list. From updating payroll systems and expense policies to restructuring travel budgets, businesses must act quickly to handle retrospective adjustments backdated to 6 April 2026 and stay compliant. Here is a definitive breakdown of the new rates, who they impact, and the steps your business needs to take today.
The New 2026/27 HMRC Mileage Rates at a Glance
Following the Chancellor’s recent statement, the updated HMRC travel and mileage allowances are structured as follows:
| Vehicle Type | First 10,000 Business Miles | Over 10,000 Business Miles |
| Cars & Vans | 55p per mile (Up from 45p) | 25p per mile (Unchanged) |
| Motorcycles | 24p per mile (Unchanged) | 24p per mile (Unchanged) |
| Bicycles | 20p per mile (Unchanged) | 20p per mile (Unchanged) |
- Unlike cars and vans, the approved rates for motorcycles and bicycles do not drop after 10,000 miles; they remain at a flat 24p and 20p per mile respectively for all business mileage.
- Employees can also receive an additional 5p per mile per passenger when carrying colleagues on qualifying business journeys.
Why the 10p Increase Matters
The previous 45p rate had remained stubbornly unchanged for 15 years, failing to reflect the escalating real-world costs of fuel, insurance premiums, maintenance, and vehicle depreciation. This increase to 55p per mile is expected to inject significant financial relief into key sectors. It particularly benefits mobile workers who rely heavily on their own vehicles, including care workers, sales representatives, field engineers, community healthcare staff, and small business owners.
What Counts as Genuine Business Mileage?
HMRC rules only allow claims for genuine business travel, including:
- Visiting clients or customers at their premises.
- Travelling between different work sites or office locations.
- Attending off-site business meetings, training, or conferences.
- Travelling to a temporary workplace.
Keep in mind that regular commuting between an employee’s home and a permanent, fixed workplace does not qualify.
The Mid-Year Trap: Managing Backdated Claims
Because the 10p increase was announced on 21 May 2026 but applies retrospectively to the start of the tax year (6 April 2026), employers face an immediate administrative hurdle.
- The Top-Up Choice: Employers are not legally required to pay the maximum AMAP rate. However, if your policy is to match HMRC rates, you must decide whether to process a retrospective ‘top-up’ payment of 10p per mile for any claims already paid out at 45p since April.
- Tax Relief Shortfalls: If your business chooses to keep its reimbursement at the old 45p rate, your employees are legally entitled to claim HMRC Mileage Allowance Relief (MAR) on the 10p difference via a P87 form or their Self-Assessment tax return.
- Tax Exemptions Reconfirmed: As a reminder, any reimbursement payments your business makes that remain within these new maximum AMAP limits are completely free from National Insurance contributions and exempt from P11D reporting.
Immediate Action Plan for Businesses
To ensure complete compliance and accurate financial forecasting, your business should immediately execute the following steps:
- Audit Expense Logs: Review all staff mileage claims submitted between 6 April 2026 and the present date.
- Update Payroll Configuration: Adjust your internal payroll software or coordinate with your external payroll provider to update the base car/van rate to 55p.
- Revise Travel Budgets: Recalibrate your 2026/27 travel and fleet budgets to absorb the increase in maximum tax-free mileage costs.
- Enforce Compliant Records: Remind drivers that HMRC require rigorous digital or written tracking. Alongside logging the number of business miles travelled, detailing the exact date, start/end locations, and precise business purpose of every single trip is a strict compliance rule heavily enforced by HMRC. Many businesses use digital mileage-tracking apps to simplify this type of data collection.
Advisory Fuel Rates Also Updated
Alongside AMAP changes, HMRC has also updated Advisory Fuel Rates (AFRs) used for company cars — these rates are primarily used to reimburse fuel costs for company car users.
For the 2026/27 period:
- Petrol vehicles range from 12p–22p per mile
- Diesel vehicles range from 12p–18p per mile
- Fully electric vehicles sit at 7p per mile for home charging and 15p per mile for public charging (with tiered rates formally taking effect from 1 June 2026).
What the New Rates Mean for the Self-Employed
Sole traders using simplified expenses stand to gain a major boost to their tax-deductible expenses. Under the HMRC simplified expenses scheme, self-employed individuals can bypass the administrative headache of tracking every individual fuel receipt, repair bill, and insurance premium — relying instead on flat-rate vehicle deductions. Because Chancellor Rachel Reeves’ historic 10p increase is fully backdated to 6 April 2026, sole traders can immediately project a higher deduction on their next Self-Assessment tax return. This extra relief should help small businesses offset the overheads of running a commercial vehicle.
Final Thoughts
The historic uplift in HMRC mileage rates brings a welcome dawn of financial relief for employees and businesses alike — especially after a gruelling 15-year freeze against the backdrop of relentlessly rising motoring costs. For frequent business drivers, that extra 10p per mile is no mere drop in the ocean — it can potentially save hundreds, or even thousands, of pounds in tax-free reimbursement over the course of the year. However, as the tax year progresses, swift administrative action is required to ensure internal mileage policies, payroll architectures, and claim systems are meticulously recalibrated to mirror this new HMRC guidance.
If you would like to discuss how these changes affect you and your business, please feel free to contact the WHA Tax Team or the principal that looks after your financial affairs. We will be pleased to help you navigate around the new HMRC mileage rates.
To discuss this matter, you can call us on Tel No: 020 8878 8383 or via email info@whitehartassociates.com.
