In a surprise announcement during her May 2026 speech to the House of Commons, Chancellor Rachel Reeves confirmed that HMRC’s Approved Mileage Allowance Payment (AMAP) rate for cars and vans will increase for the first time in over 15 years.
The change, effective from April 2026, raises the approved mileage rate from 45p to 55p per mile for the first 10,000 business miles travelled annually.
For employers, company directors, and employees who regularly use their own vehicles for business journeys, this change could result in significantly higher tax-free reimbursements and lower out-of-pocket travel costs.
What Are the New HMRC Mileage Rates?
From April 2026, the approved mileage rates are:
Vehicle Type Previous Rate New Rate
Cars and Vans (first 10,000 miles) 45p 55p
Cars and Vans (over 10,000 miles) 25p 25p
Motorcycles 24p 24p
Bicycles 20p 20p
The passenger payment allowance also remains unchanged at:
5p per passenger per business mile
This can be claimed when carrying colleagues on qualifying business journeys.
Why Has HMRC Increased the Rate?
The previous 45p rate had remained unchanged since 2011 despite:
Rising fuel prices
Increased vehicle maintenance costs
Higher insurance premiums
Increased vehicle financing costs
General inflation across the economy
Many business groups and professional bodies had argued that the existing rate no longer reflected the true cost of using a personal vehicle for work purposes.
The increase to 55p per mile appears designed to better align reimbursement rates with the real-world costs faced by employees and business owners.
How Much Difference Will the Increase Make?
The impact can be significant for frequent business travellers.
Example 1: Employee Driving 5,000 Business Miles
Previous system:
5,000 miles × 45p = £2,250
New system:
5,000 miles × 55p = £2,750
Additional reimbursement: £500 per year
Example 2: Director Driving 10,000 Business Miles
Previous system:
- 10,000 miles × 45p = £4,500
New system:
- 10,000 miles × 55p = £5,500
Additional reimbursement: £1,000 per year
For many owner-managed businesses, this represents a meaningful increase in tax-efficient expense claims.
How Does the Mileage Allowance Work?
The AMAP system allows employees and directors to claim a tax-free reimbursement when using their personal vehicle for qualifying business journeys.
The allowance is designed to cover costs such as:
- Fuel
- Insurance
- Servicing
- Repairs
- Depreciation
- Vehicle wear and tear
Because these costs are already built into the approved rate, separate claims for fuel and maintenance are generally not permitted when using the mileage method.
What Counts as Business Mileage?
Business mileage typically includes:
- Travel to client meetings
- Visits to suppliers
- Travel between workplaces
- Temporary work locations
- Business networking events
However, ordinary commuting is not allowable.
This means journeys between:
- Home and a permanent workplace
- Home and a regular office
cannot usually be claimed.
Maintaining accurate mileage records remains essential.
A mileage log should include:
- Date of journey
- Destination
- Business purpose
- Number of miles travelled
What Happens If an Employer Pays More Than 55p?
Employers are free to reimburse employees at higher rates.
However, any amount paid above HMRC’s approved rate becomes taxable.
For example:
If an employer pays:
65p per mile
The additional 10p per mile would normally be subject to:
Income Tax
National Insurance
This creates additional payroll administration and reporting requirements.
What If an Employer Pays Less Than 55p?
Businesses are not required to reimburse at the full HMRC rate.
However, if an employee receives less than the approved rate, they may be able to claim tax relief on the difference.
Example
Employer pays:
40p per mile
HMRC approved rate:
55p per mile
Difference:
15p per mile
The employee may be entitled to claim tax relief on that shortfall through HMRC.
Many employees are unaware this option exists, making communication from employers particularly important following the rate increase.
What Does This Mean for Company Directors?
For directors of limited companies, the increased mileage rate creates an additional opportunity to extract value from the business tax efficiently.
Where a director uses their personal vehicle for business travel:
- Mileage claims remain deductible for Corporation Tax purposes
- Reimbursements are generally tax-free personally
- No Benefit-in-Kind charge arises
For many small business owners, claiming mileage on a personally owned vehicle continues to be more attractive than running a conventional petrol or diesel company car.
Company Car vs Mileage Claims
The increase may also influence decisions around company vehicles.
Personal Vehicle + Mileage Claims
Advantages:
Simpler administration
Tax-free reimbursements
No Benefit-in-Kind implications
Company Vehicle
Advantages:
Business pays running costs directly
Suitable for high-mileage drivers
Disadvantages:
Potential Benefit-in-Kind tax charges
Additional reporting obligations
For electric company cars, the equation may be different due to favourable Benefit-in-Kind rates, but mileage claims remain an important consideration for many directors.
Actions Businesses Should Take
With the new rates now in force, businesses should review:
Mileage policies
Ensure reimbursement rates reflect current HMRC guidance.
Payroll systems
Check that mileage payments are being processed correctly.
Employee communications
Inform staff about any changes and explain how mileage claims should be submitted.
Expense procedures
Review record-keeping requirements and mileage logs.
Businesses that fail to update policies may find employees missing out on legitimate reimbursements or claiming tax relief directly from HMRC instead.
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