Mileage at 55p: staff paid 45p can claim relief on the gap

The tax-free rate for business journeys in your own car or van is now 55p a mile for the first 10,000 miles of the tax year, up from 45p. It became law in July and counts from 6 April 2026. So an employee still being paid 45p has been 10p a mile short since April. HMRC will not pay them that 10p, but it will give them tax relief on it: the tax on the gap, not the gap itself.

The rate changed in July and counts from April

The increase was announced on 21 May 2026 and is in section 2 of the Taxation (Energy and Vehicles) Act 2026, which received Royal Assent on 15 July. HMRC's table of approved mileage rates for 2026/27 now reads:

• cars and vans: 55p a mile for the first 10,000 business miles, then 25p

• motorcycles: 24p

• bicycles: 20p

HMRC's policy paper is plain about the date: "The increase is retrospective taking effect from 6 April 2026." It is the first change to the car rate since 2011, and there is more on the 55p rate and who gains from it.

Two caveats. The rate, known as the Approved Mileage Allowance Payment (AMAP), is not compulsory: in HMRC's words, "The AMAP rate is advisory, and employers can choose to reimburse more or less." And it may not last. The same paper says the government has "committed to a review of these rates beyond 2026 to 2027" and "will set this out at the Budget 2026". The Budget on 28 October could announce a different rate from April 2027.

What the gap is worth

Illustration, not a real client. Sam works for a lettings agency in Barnet and drives her own car to viewings, about 300 business miles a month. The agency still pays 45p.

From April to September she drove 1,800 business miles and was paid £810. At 55p the approved amount is £990, so the gap is £180.

Sam is a basic-rate taxpayer, so relief on £180 is worth 20 per cent of it: £36. At the same pace for the whole year the gap is £360 and the relief £72. A higher-rate taxpayer would get twice that.

If the agency paid the extra 10p instead, Sam would receive the whole £180, tax free. Relief gives back the tax on the gap. Paying the rate gives back the gap.

How an employee claims

HMRC's guidance on claiming relief for vehicles you use for work sets out the route.

• Online or by post. Use HMRC's online service or form P87 by post. Above £2,500 for a tax year, the claim goes on a Self Assessment return, and anyone who already files one must claim there.

• Evidence. A mileage log showing the reason for every journey and the postcodes where each one started and ended.

• Time limit. Claims can cover this tax year and the 4 before it. For this year, HMRC usually adjusts the tax code. Relief cannot be more than the tax the person paid that year.

• What counts. Business journeys only. The ordinary commute to a normal workplace does not.

Staff who want the detail can read our guide to claiming tax relief on work expenses directly from HMRC.

What employers should decide

• Pay 55p from now. HMRC's August 2026 Employer Bulletin suggests employers paying at or below the approved rate "may want to increase the amount you reimburse". Up to 55p for the first 10,000 miles there is nothing to report and no tax or National Insurance to pay.

• Top up the months since April, or leave staff to claim. You can pay the extra 10p on miles already claimed. Staff can only claim relief on what you have not paid, so tell them which you are doing. National Insurance on mileage is worked out pay period by pay period, so ask whoever runs your payroll how a back-dated payment will be treated before you make it.

• Already paying more than 45p? If you pay, say, 50p and have been taxing the 5p above the old rate, that tax may no longer be due. HMRC says you may need to correct payroll for earlier months of 2026/27 so overpaid tax and National Insurance can be refunded.

• Staying at 45p is allowed. Tell drivers they can claim the relief, and make sure they keep a log that will support it.

What to do now

Check what each driver has been paid since 6 April and how many business miles they have logged. Decide whether you will pay 55p, top up or point staff to the relief, and put the decision in writing. Then check what the Budget on 28 October says about the rate from April 2027. The government has said it will set out its review of mileage rates then.

About the author

Harvey Dhillon is the founder and CEO of Zmartly, a UK accountancy firm for small businesses. He grew up in West London and worked in finance roles in investment banking, wealth management and private equity, starting at Barclays, before leaving in 2020 to build the firm. He is a Chartered Management Accountant (ACMA, CGMA).

Featured photo by Alicia Christin Gerald on Unsplash.