HMRC increase mileage rate to 55p: What businesses and employees need to know

The UK government has confirmed a significant update to business mileage rates, marking the first increase in over a decade despite rising fuel, maintenance, and vehicle costs.

Announced by Chancellor Rachel Reeves and detailed in HMRC’s latest Agent Update (issue 143), the approved mileage allowance for the first 10,000 miles of qualifying business journeys will rise from 45p to 55p per mile, with the change backdated to 6 April 2026.

For many, this update represents long-overdue recognition of the financial burden carried by employees and self-employed individuals who rely on their own vehicles for work.

Why this change matters

For years, the 45p rate has been widely viewed as outdated, especially as inflation and operating costs have steadily increased. Workers in roles requiring regular travel, such as community carers, tradespeople, sales professionals, and field engineers, have felt the impact most acutely.

The increase to 55p per mile is designed to better reflect the real cost of using a personal vehicle for business purposes. It also provides employers with greater flexibility to offer fair, tax-efficient reimbursements.

What this means for employers

Employers reimbursing staff for business mileage now have the option to pay up to 55p per mile tax-free for the first 10,000 miles.

This is important because:

• Payments up to the HMRC approved rate are exempt from tax and National Insurance.
• It provides an opportunity to review and improve employee benefits.
• It helps ensure reimbursement policies remain competitive and fair.

For example, an employee who drives 5,000 business miles per year could now receive an additional £500 annually compared to the previous rate. Now is the ideal time for employers to review mileage reimbursement policies and ensure compliance with HMRC guidelines. 

Employers who continue to reimburse at lower rates may risk dissatisfaction among staff, especially in sectors where travel is a core part of the role.

What it means for employees

If you receive less than 55p per mile (for example, 35p), you can claim Mileage Allowance Relief (MAR) from HMRC. This allows you to claim tax relief on the difference between what you were paid and the approved rate.

For example, if an employer pays: 35p per mile, resulting in a 20p shortfall from the HMRC approved rate, you can claim tax relief on that 20p difference through HMRC’s Job Expenses process, reducing the financial gap.

What It means for self-employed individuals

For self-employed individuals and sole traders, the change also brings tangible benefits.

You can now:

• Claim 55p per mile as an allowable expense
• Deduct this from your business profits in your Self-Assessment tax return

This directly reduces your taxable income, ultimately lowering your tax bill. For those who drive frequently for work, the cumulative effect could be substantial.

A welcome reprieve

Over the past 15 years, running costs for vehicles, including fuel, insurance, servicing, and depreciation, have all risen considerably with the Middle East crisis bringing these issues to a head.

By updating the mileage rate, the government is acknowledging the rising cost of work-related travel, the essential role played by mobile and frontline workers, and the need for fairer, more realistic reimbursement frameworks.

Whilst there can be no guarantee that the revised rate will extend beyond 2026/2027, the uplift will provide a measure of relief for many.