Business owners across the UK are facing continued pressure from rising fuel prices and motoring costs. After 15 years without change, the Government has approved an increase to the HMRC advisory mileage rate for cars and vans used for business travel.
This update is a welcome and much-needed change, offering some financial relief when employees use their own vehicles for work.
Understanding the mileage rate change
From April 2026, the approved HMRC mileage allowance for business journeys increases from 45p to 55p per mile. This applies to the first 10,000 business miles travelled in a tax year.
Once the 10,000-mile threshold has been reached, the rate will reduce to 25p per mile for additional business travel. This rate for higher mileage has not changed.
HMRC only allows claims for genuine business journeys. Ordinary commuting still doesn’t qualify. It’s important to remember that you can claim mileage using HMRC’s approved rates or claim fuel costs for a business journey.
Employers – do you reimburse the full mileage rate?
Some employers choose not to use the full HMRC mileage rate. If your company currently reimburses below the approved HMRC rate, employees may be entitled to claim tax relief on the shortfall. For example:
- HMRC approved rate = 55p per mile
- Employer pays = 35p per mile
- Difference = 20p per mile difference
The tax relief may not make up the shortfall, however it can still be beneficial if employees are regularly driving to meetings or work locations.
Next steps for businesses
With the new rates coming into effect, now is a good time for employers to review:
- Mileage reimbursement policies
- Payroll settings
- Expense claim procedures
- Employee travel policies
Updating these systems early can help avoid payroll errors and ensure employees are reimbursed correctly. Bookkeeping software such as Xero should also be updated to reflect the new mileage rate.
‘As a first step, employers should review and update their mileage policy and payroll systems to reflect the new rate,’ says Claudia, Payroll Manager with Spicer & Co Chartered Accountants in Dunstable.
‘It’s important to remember that the change is backdated to April 2026, so additional payments for mileage from April onwards may be needed.’
How we can help
If you would like guidance on mileage claims, employee reimbursements, or updating your payroll systems, let’s talk.
Enjoy an initial discussion without obligation or jargon, just practical advice in plain English.