The Chancellor has announced a welcome increase to the tax-free mileage rate for employees who use their own car or van for business journeys.
From April 2026, the approved mileage rate for cars and vans will increase from 45p per mile to 55p per mile for the first 10,000 business miles in the tax year. The change has been announced as part of the Government’s wider package of support for families and businesses facing increased costs.
Importantly, the increase is being backdated to April 2026, which means employers will need to consider how they deal with mileage claims already submitted since the start of the tax year.
What has changed?
For employees using their own car or van for business travel, the tax-free approved mileage rate is now:
- 55p per mile for the first 10,000 business miles in the tax year
- 25p per mile for business miles over 10,000
The rate for motorcycles remains 24p per mile, and the rate for bicycles remains 20p per mile. The passenger payment rate for carrying fellow employees on business journeys remains 5p per passenger per business mile.
This is the first increase to the main car and van mileage rate for many years. The 45p rate had applied from the 2011/12 tax year through to 2025/26.
Why does this matter?
Mileage Allowance Payments are the amounts employers can pay to employees who use their own vehicle for business journeys. Provided payments are within the approved amount, they can usually be paid without reporting them to HMRC and without deducting tax or National Insurance.
For many employees, particularly those who are required to travel regularly for work, the previous 45p rate has felt increasingly out of step with the real cost of running a vehicle.
The Chancellor referred specifically to those who need to drive for work, including care workers and plumbers, when announcing the 10p per mile increase.
What should employers do now?
Employers should review their current expenses and mileage policies as soon as possible.
Where employers already pay the HMRC approved mileage rate, the policy will likely need updating from 45p to 55p per mile for cars and vans for the first 10,000 business miles.
Because the change is backdated to April 2026, employers should also consider whether an adjustment is needed for mileage already claimed and paid at the previous 45p rate.
For example, if an employee has already claimed 500 business miles since April at 45p per mile, the difference would be:
500 miles x 10p = £50 additional mileage payment
Employers will need to decide how they process these adjustments, whether through payroll, expenses, or a separate reimbursement process.
What if the employer pays less than 55p per mile?
Employers are not required to pay the full HMRC approved mileage rate. Some employers may pay a lower rate, depending on their policy or contractual arrangements.
However, where an employee receives less than the approved amount, they may be able to claim Mileage Allowance Relief on the difference.
For example, if an employer continues to pay 45p per mile and the approved rate is now 55p, the employee may be able to claim tax relief on the 10p per mile shortfall.
What if the employer pays more than 55p per mile?
If an employer pays above the approved mileage rate, the excess is generally treated as taxable pay and may need to be reported through payroll or on a P11D, depending on how the payment is processed.
This means it is important that employers check their systems, expense rules and payroll treatment carefully before making changes.
Practical payroll considerations
This change is simple on paper, but it creates a few practical issues for employers and payroll teams.
Employers should check:
- whether their expenses system has been updated to the new 55p rate
- whether any claims submitted from April 2026 need to be recalculated
- whether employees have already been reimbursed at 45p per mile
- how any backdated top-up payments will be processed
- whether the mileage policy, employee handbook or intranet guidance needs updating
- whether managers and employees need a short communication explaining the change
The key point is not to ignore the backdating. If employees have been paid at the old rate since April, there may be a gap that needs addressing.
Final thoughts
This is a positive change for employees who are expected to use their own vehicle for work. The cost of motoring has increased significantly over recent years, and the 45p rate has been under pressure for some time.
For employers, the immediate priority is to review policies, systems and claims already submitted since April 2026.
As always, the challenge is not just knowing that the rate has changed — it is making sure the change is applied correctly, consistently and in a way that employees understand.
Need help reviewing your mileage policy or payroll treatment of expenses? Your Payroll Team can support employers with payroll compliance, expenses processes and employee communications.