Mileage Rates Increase to 55p

What You Need to Know

After more than a decade of stability, the landscape of mileage claims in the UK has finally shifted. For years, businesses, employees, and the self-employed have been working with a system many felt no longer reflected the true cost of travel. That has now changed. From 6 April 2026, HMRC introduced a long-awaited update that will have a tangible impact on how mileage is calculated, reimbursed, and claimed across the board.

This change has been formally confirmed in HMRC guidance updated on 21 May 2026, marking a significant moment for those who rely on their vehicles for business use. At the centre of this update is a clear adjustment. As HMRC confirms, the approved mileage rate for cars and vans has increased to 55p per mile for the first 10,000 business miles, with 25p per mile thereafter.

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This represents a 10p increase from the long-standing 45p rate, which had remained unchanged since 2011. The update also applies retrospectively from the start of the 2026/27 tax year, ensuring that individuals and businesses benefit from the higher rate from 6 April 2026.

While the headline rate has increased, the overall structure of the system remains familiar. The reduced rate for mileage above 10,000 miles continues at 25p, and the rates for motorcycles and bicycles are unchanged at 24p and 20p respectively. This continuity provides a level of stability, even as the headline figure has been updated.

It is important to understand that HMRC mileage rates are designed to provide a simplified way of accounting for vehicle expenses. Rather than requiring individuals to track every single cost, such as fuel, servicing, insurance and depreciation, the flat rate is intended to reflect overall running costs in a practical and manageable way.

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The impact of this change will be felt across a broad range of users. Employees who use their own vehicles for business travel are likely to see immediate benefits. Provided the journeys qualify as business travel rather than ordinary commuting, employers can reimburse mileage up to the approved rate without triggering tax or National Insurance liabilities. Where reimbursement falls below this level, employees may still claim Mileage Allowance Relief on the difference, ensuring that the full entitlement is not lost.

For employers, the change introduces the need to review existing processes. Long-standing mileage rates within expense policies may now require updating, and payroll systems should reflect the new figures. Given that the change applies from April 2026, employers may also wish to consider whether adjustments are appropriate for mileage already reimbursed earlier in the tax year. This will depend on internal policies and how mileage is managed within the business.

The self-employed will also benefit from the revised rate. Those using the simplified mileage method will now be able to apply the higher 55p rate when preparing their 2026/27 tax returns. The financial impact of this increase can be significant. For example, a driver covering 8,000 business miles would previously have claimed £3,600 at the 45p rate. Under the new structure, that same mileage qualifies for a £4,400 claim, representing an additional £800 in allowable expenses.

Despite the relative simplicity of mileage rates, errors remain common. One of the most frequent misunderstandings relates to the difference between business travel and commuting. Travel between home and a permanent workplace does not qualify for relief, regardless of distance, and this distinction continues to be a key area of confusion. Other issues arise from using outdated rates, failing to maintain accurate mileage records, or confusing the rules that apply to personal vehicles with those that apply to company cars.

This last point is particularly important, as mileage rates are often confused with Advisory Fuel Rates. While both relate to travel costs, they serve different purposes. Mileage rates apply to personal vehicles used for business travel, whereas Advisory Fuel Rates apply specifically to company cars and are reviewed regularly to reflect changes in fuel and electricity prices. Understanding this distinction is essential for ensuring accurate and compliant claims.

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Taken together, the increase in mileage rates represents a welcome and overdue adjustment. It brings the system closer to the reality of modern vehicle costs while maintaining the simplicity that makes it practical for everyday use. At the same time, it highlights the importance of reviewing existing processes to ensure they remain aligned with current HMRC guidance.

At LL Payroll & Consultancy, we understand that changes like this can create both opportunity and uncertainty. Supporting businesses through regulatory updates is a key part of ensuring payroll and expense processes remain compliant and efficient. In addition, we work alongside trusted partner practices who can assist individuals with personal tax relief claims, including mileage allowances, helping to ensure that no entitlement is missed.

For those affected by this change, whether as employers or individuals, the message is clear. Taking the time to understand and implement the updated rates will not only ensure compliance, but also help you make the most of the reliefs available.

Originally published on LinkedIn: https://www.linkedin.com/pulse/mileage-rates-increase-55p-ll-payroll-consultancy-ltd-mq97e