Increased HMRC approved mileage rates for business travel announced
Alongside other announcements on temporary VAT changes, the government has announced an increase in the Approved Mileage Allowance Payments (AMAPs) for business travel from April 2026.
The updated rates will apply for AMAPs, Mileage Allowance Relief (MAR) and simplified motor expenses for the self-employed. The advisory fuel rates for business travel in a company car are unaffected by the announcement, although these are already reviewed on a quarterly basis.
Revised HMRC approved mileage rates
Following the announcement, AMAPs, MAR and self-employed mileage have now increased from 45p to 55p per business mile for the first 10,000 business miles travelled in the tax year. The 25p per mile for any remaining mileage in a tax year (which has been in place since 2001) remains unchanged, as is the 5p per business mile rate for passenger payments and the 24p rate for travel in motor cycles and the 20p rate for bicycles.
The ATT previously made a budget submission calling for rates to be reviewed, given the increase in the running costs of a vehicle since the main rate for travel in an employee's car or van last increased in 2011. We therefore welcome the announcement of increased rates for 2026/27, but would like to see the rates reviewed in a more regular basis in future.
A key element of the change is that the new rates have been backdated to 6 April 2026, so will apply for the whole 2026/27 tax year. The Exchequer Secretary to the Treasury has confirmed via a written statement that HMRC will apply the change informally until the legislation can be updated to introduce the new rates for both Income Tax and National Insurance purposes.
Where mileage has already been reimbursed since 6 April 2026
HMRC have set out some practical steps in Issue 143 of Agent Update for mileage that has already been reimbursed during the 2026/27 tax year. Employers who have paid the previous 45p per business mile rate can revisit mileage payments since 6 April 2026 and pay any shortfall based on the new 55p per business mile rate without Income Tax and National Insurance being payable.
Where an employer paid business mileage travelled in an employee's car or van in April or May at a rate above 45p per business mile and deducted Income Tax and National Insurance contributions, HMRC suggest that the payroll for April and May may need to be updated to reflect the higher AMAP rates.
Where an employer does not wish to pay the updated AMAP rates
The increase in rates does not change the fact that employers are not obliged to pay AMAP rates to employees for business travel in their own vehicle. Where an employer does not reimburse business mileage or pays a rate below AMAP rates, the employee can claim MAR on the difference between the amount reimbursed (if any) and the relevant AMAP rates. No tax relief can be claimed for any passenger payments if not reimbursed by the employer.
Tax relief would be claimed via self-assessment tax return (if they complete a return) or claims of up to £2,500 per tax year can be submitted via the online HMRC form or by submitting Form P87 to HMRC by post. However, both the online form and Form P87 still need to be updated by HMRC to reflect the new mileage rates.
Transitional rules for self-employed taxpayers
Where a self-employed taxpayer using simplified motor expenses does not have a year end which coincides with the tax year, transitional rules will need to be applied. As self-employed profits are now taxed on a tax year basis, the calculation of simplified motor expenses will be different.
HMRC use the example of a December year end in the updated guidance. When the taxable profits for the year ended 31 December 2026 are pro-rated to the 2025/26 and 2026/27 tax years, it will be necessary to use the applicable rates for each tax year.
This means the whole mileage for the year ended 31 December 2026 will be deducted at 45p (first 10,000 business miles) and 25p per mile (any remaining business mileage) before pro-rating the allocation to the 2025/26 tax year. The simplified motor expenses will then need to be recalculated at 55p and 25p respectively per business mile when pro-rating the allocation to the 2026/27 tax year.
Regardless of the level of mileage travelled, self-employed taxpayers are not able to claim additional relief for carrying passengers on business journeys.