Tax Free Mileage Allowance increase -backdated to April 2026

Drivers who use their personal vehicle for business travel are set to benefit from a welcome increase in the approved mileage allowance rate.

The Government has confirmed that the tax-free mileage rate for cars and vans will rise from 45p to 55p per mile for the first 10,000 business miles driven each tax year. The change will be backdated to 6th April 2026.

The announcement was made as part of Chancellor Rachel Reeves’ latest package aimed at easing pressure from rising household costs.

Who does this apply to?

This does not include normal commuting between home and a regular workplace.

Examples of qualifying business travel could include:

• Care workers visiting clients

• Tradespeople travelling between jobs

• Sales representatives attending appointments

• Self-employed workers travelling to customers

If you drive a company car, different rules apply.

How Mileage Allowance Works

Employers can reimburse staff for business mileage through what is known as an Approved Mileage Allowance Payment (AMAP). Payments made within HMRC’s approved rates are free from Income Tax and National Insurance.

Until now, the approved rate had remained unchanged at 45p per mile since 2011. The increase to 55p is the first significant uplift in over a decade and reflects the increasing cost of running a vehicle.

Once you exceed 10,000 business miles within the tax year, the rate drops to 25p per mile.

What if your employer pays less?

Many employers choose to reimburse mileage at a lower rate than HMRC’s approved allowance.

If your employer pays less than the approved amount, you may be able to claim tax relief on the difference.

For example:

• HMRC approved rate: 55p per mile

• Employer reimbursement: 30p per mile

• Difference eligible for tax relief: 25p per mile

  
  

If your employer does not reimburse you at all, you may be able to claim tax relief on the full approved mileage amount.

Employees can usually make these claims directly through HMRC, while self-employed individuals typically claim through their Self Assessment tax return.

Self-Employed Drivers also benefit

The increase is not limited to employees. Self-employed workers using their own vehicle for business purposes can also use the updated rates when calculating allowable expenses.

It’s important to note that the mileage allowance is intended to cover the overall running costs of the vehicle, including:

• Fuel or electricity

• Insurance

• Repairs and servicing

• Vehicle tax

• MOT costs

• General wear and tear

  
  

Because the mileage rate already factors in these costs, they cannot usually be claimed separately if using the simplified mileage method.

What about motorbikes and vehicles?

The new 55p rate only applies to cars and vans.

The approved rates for other vehicles remain unchanged:

• Motorbikes: 24p per mile

• Bicycles: 20p per mile

  
  

Unlike cars and vans, these rates do not reduce after 10,000 miles.

For workers and business owners regularly driving for work, this increase could make a noticeable difference over the course of the year.

With fuel, insurance and maintenance costs continuing to rise, the updated mileage allowance should provide some much-needed support for employees and self-employed individuals alike.

If you would like support on anything raised or to see how HPC Accountancy could support you and save you tax, get in touch today!