The 55p Mileage Rate Shift

What the First Uprating in 15 Years Means for Your Business

For more than a decade, one specific figure has remained stubbornly frozen in UK tax legislation. Since 2011, the HMRC Approved Mileage Allowance Payment (AMAP) rate for employees using their personal cars or vans for business travel sat at 45p per mile. Despite skyrocketing fuel prices, climbing insurance premiums, and the general inflation of vehicle maintenance costs, business drivers were left dealing with an outdated cap.

That has finally changed. 

Chancellor Rachel Reeves announced a major shift to business travel reimbursement as part of a wider cost-of-living support package, boosting the tax-free mileage allowance by 10p. So, raising it from 45p to 55p per mile.

Described by consumer champion and MSE Founder, Martin Lewis, as a “really important change” that will offer manifest benefits. This 10p uplift is a significant win for anyone driving as part of their job. Crucially, the government has backdated the new rate to the 6th of April 2026, meaning it applies to the entire current tax year.

John Farrell, our Director at Ellis & Co, notes how vital this change is for regional businesses:

“This uprating is as significant as it is overdue. For fifteen years, the 45p rate failed to reflect the true economic reality of running a vehicle. While a 10p increase is incredibly welcome news for mobile workers across regions like Chester, Wrexham, and Warrington, it does present employers with an immediate administrative task. Navigating backdated payroll adjustments and updating internal expense policies quickly will be key to remaining compliant while maximising this new tax efficiency.”

The New Rates at a Glance

The 10p increase applies specifically to the first 10,000 business miles driven in a car or van during the tax year. Here is how the rules stand now:

• Cars and Vans (First 10,000 miles): 55p per mile (Up from 45p)
• Cars and Vans (Over 10,000 miles): 25p per mile (Unchanged)
• Motorcycles: 24p per mile (Unchanged)
• Bicycles: 20p per mile (Unchanged)

As a reminder, these rates apply only to qualifying business journeys. For example, travelling to a client meeting or visiting another branch. Keep in mind that standard daily commuting to and from your regular place of work remains strictly excluded by HMRC.

What Employers Need to Do Right Now

As an employer, you are not legally obligated to pay the full AMAP rate, but doing so is highly tax-efficient. Any mileage reimbursed up to the 55p cap is completely free from Income Tax and National Insurance Contributions (NICs).

As the government backdated the 55p rate to April, employers face a few immediate administrative choices outlined in HMRC’s latest guidance:

1. Rectifying Shortfalls: If you have been reimbursing staff at the old 45p rate since April, you can choose to make a backdated payment to top them up by 10p per mile for those journeys, entirely tax-free.

2. Adjusting Payroll: If your company happened to reimburse employees above 45p earlier in the tax year and deducted tax/NICs on the excess, your payroll records will need to be retroactively adjusted to reflect the new, higher tax-free threshold.

3. Reviewing Policies: Now is the time to review your internal mileage policies. For an employee driving 5,000 business miles a year, this change represents an extra £500 annually. Moving to 55p can dramatically boost staff satisfaction and retention, particularly for mobile and frontline workers such as community carers, tradespeople, and field engineers who rely heavily on their personal vehicles.

The Impact on Employees and the Self-Employed

If your employer chooses not to increase their reimbursement rate to 55p, don’t panic. You can claim Mileage Allowance Relief (MAR) directly from HMRC for the difference. For instance, if your company continues to pay 45p, you can claim tax relief on the remaining 10p per mile through HMRC’s Job Expenses process (using a P87 form or via your Self-Assessment).

For self-employed sole traders, the 55p flat rate can be used under the simplified motor expenses method. Hence, it is highly recommended to review whether claiming this flat-rate allowance is now more tax-efficient for your business than calculating your actual, receipt-based vehicle running costs.

Part of a Wider Relief Package

This milestone 10p uprating arrives alongside broader government interventions aimed at tackling high fuel and operating costs driven by geopolitical pressures in the Middle East. Alongside the mileage increase, the Chancellor confirmed a further extension to the fuel duty freeze, a year-long road tax holiday for hauliers, and a significant tariff suspension on over 100 everyday essentials.

While there is no guarantee from HMRC that this revised 55p rate will extend beyond the 2026/2027 tax year, it provides a much-needed, immediate financial reprieve.

Let Ellis & Co Handle the Adjustments

While the mileage rate increase is welcome news for your wallet, retroactively adjusting payroll, changing expense software settings, and reworking self-employed tax deductions can create an administrative headache.

So whether you need to rerun payroll figures to account for backdated claims, update your company expense policies, or calculate the most tax-efficient method for your upcoming Self-Assessment, the team at Ellis & Co is here to help.

Get in touch with our team today to ensure your business remains compliant and tax-efficient.

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About Ellis & Co 

Ellis & Co is a leading accountancy firm specialising in accountancy & audit, bookkeeping, payroll, tax planning and business advisory services. We work with a diverse range of businesses, from start-ups to established companies, ensuring they have the financial clarity and support they need to succeed. With our team of experienced accountants based in Chester, Warrington and Wrexham, we are proud to offer personalised solutions that help businesses succeed.