Big Announcement: HMRC Increases Mileage Rates to 55p and is backdating the change to April 2026 - Massive Tax Savings Await Employees, Directors, and Business Owners
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- 3 days ago
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The UK tax authority HMRC has recently announced a significant increase in the approved mileage allowance rates. The rate for business travel in personal vehicles has jumped from 45p per mile to 55p per mile for the 2026/27 tax year onwards. This change brings substantial tax savings for employees, directors, and business owners who use their own vehicles for work-related journeys. Understanding this update can help you maximize your tax relief and reduce your overall costs.
What Has Changed in HMRC Mileage Rates?
Previously, HMRC allowed employees and business owners to claim 45p per mile for the first 10,000 miles driven for business purposes in a tax year. Any additional miles were reimbursed at a lower rate of 25p per mile. The new announcement raises the first-tier mileage rate to 55p per mile, while the second-tier rate remains unchanged at 25p.
This increase means that for every mile driven up to 10,000 miles, you can now claim an extra 10p per mile in tax-free mileage allowance. For example, if you drive 10,000 miles for work, your allowable mileage claim rises from £4,500 to £5,500, a £1000 increase in tax-free reimbursement.
Who Benefits from the Mileage Rate Increase?
This update affects several groups:
Employees who use their personal cars for work travel and receive mileage allowance from their employer.
Company directors who often use their vehicles for business trips and can claim mileage expenses.
Business owners and self-employed individuals who drive for business purposes and claim mileage relief on their tax returns.
By claiming the increased mileage allowance, these groups can reduce their taxable income or increase their tax-free reimbursements, leading to significant savings.
How Does the Mileage Rate Increase Translate to Tax Savings?
The mileage allowance covers fuel, wear and tear, insurance, and other running costs. When you claim the HMRC-approved mileage rate, you do not pay tax on the reimbursed amount. If your employer reimburses you at or below the approved rate, you do not need to report it as income.
If your employer reimburses less than the approved rate or does not reimburse you at all, you can claim tax relief on the difference through your self-assessment tax return. The increase from 45p to 55p means you can claim more tax relief on your business miles.
Example of Tax Savings for an Employee
Suppose an employee drives 9,000 miles for work and receives no mileage reimbursement. At the old rate of 45p, they could claim £4,050 in mileage expenses. Now, at 55p, they can claim £4,950. If they pay income tax at 20%, this means a tax saving increase of £180 (£900 x 20%).
Example for a Director or Business Owner
A director driving 12,000 miles for business would claim:
10,000 miles at 55p = £5,500
2,000 miles at 25p = £500
Total = £6,000
Previously, this total would have been £4,750 (10,000 x 45p + 2,000 x 25p). The increase of £1,250 means more tax-free reimbursement or tax relief, depending on how the mileage is claimed.
What Should You Do Next?
To benefit from this change, consider the following steps:
Review your mileage records to ensure accurate tracking of business miles.
Update your expense claims to reflect the new 55p per mile rate.
Inform your employer if you are an employee or director to adjust mileage reimbursements accordingly.
Consult your accountant or tax advisor to optimize your tax relief claims based on the new rates.
Keep detailed records of all business travel, including dates, destinations, and mileage, to support your claims.
Important Considerations
The increased rate applies only to business travel in personal vehicles, not company cars.
The 55p rate applies up to 10,000 miles per tax year; miles beyond this limit remain at 25p.
If your employer reimburses you above the approved rates, the excess may be taxable.
This change does not affect other travel expenses such as public transport or mileage for motorcycles and bicycles, which have separate rates.
Final Thoughts
HMRC’s increase of the mileage allowance rate to 55p per mile is a welcome update that offers massive tax savings for employees, directors, and business owners who use their own vehicles for work. By understanding and applying this change, you can reduce your taxable income or increase your tax-free reimbursements, easing the financial burden of business travel.
Get in touch today and we can talk you through the changes or make sure you are claiming what you are entitled to.
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