Mileage rate increase to 55p per mile announced

The Chancellor, Rachel Reeves, has announced an increase to the Approved Mileage Allowance Payment (AMAP) rate from 45p to 55p per mile for the first 10,000 business miles.

The change, confirmed in the House of Commons on 21 May 2026, will be backdated to April 2026 and represents the first increase to the rate in more than a decade.

What’s changing?

Under the new rules:

• The main mileage rate increases from 45p to 55p per mile for the first 10,000 business miles
• The 25p per mile rate for mileage above 10,000 miles remains unchanged

The increase applies where employees use their own vehicles for business travel (excluding ordinary commuting), and will also be relevant for self-employed individuals using simplified expense rates.

Why has the rate increased?

The previous 45p rate had remained unchanged since 2011, despite significant increases in fuel, insurance and overall motoring costs.

The uplift forms part of a wider package of cost-of-living support measures and is intended to:

• Better reflect the real cost of business travel
• Provide financial support for workers who rely on their own vehicles for work
• Reduce the administrative burden of claiming actual costs

What does this mean for employers?

For employers reimbursing business mileage, the updated rate creates several considerations:

1. Reviewing mileage policies

Employers should review existing mileage reimbursement policies to determine:

• Whether to increase payments in line with the new 55p rate
• The financial impact on travel and expense budgets

Payments made up to the approved rate remain free of Income Tax and National Insurance, which may make this a cost-effective route for supporting employees.

2. Payroll and expense system updates

Businesses may need to:

• Update payroll and expense systems to reflect the new rate
• Ensure correct treatment for mileage claims submitted retrospectively (as the change is backdated)

3. Managing transitional complexity

As the change is backdated to April 2026, employers will need to consider:

• Whether to adjust mileage payments already made this tax year
• How to handle employee claims for additional mileage relief

HMRC has indicated that it will use discretion during the transition, given the retrospective nature of the change.

What does this mean for employees and the self-employed?

For employees using their own vehicles for business travel:

• Employers can now reimburse up to 55p per mile tax-free
• Where employers pay less, employees may be able to claim tax relief on the difference

For the self-employed:

• The higher rate can be used under the simplified expenses method
• This may increase the level of allowable deductions for business mileage

We’re here to help

This change presents both an opportunity and administrative complexity - particularly for businesses managing high volumes of employee travel.

Our specialists can support with:

• Reviewing mileage policies and reimbursement structures
• Ensuring correct tax treatment and compliance
• Advising on system updates and transitional adjustments

If you would like support, please get in touch via the form below.