HMRC mileage rate rises to 55p: what it means for employers and employees
What are the new HMRC mileage rates for 2026?
As part of a package of measures aimed at easing the financial impact of the Iran crisis, it was announced recently that employers will be able to increase the amount they pay, tax and NIC-free, to employees undertaking business mileage in their own cars. Approved Mileage Allowance Payments (AMAPs) have been increased from 45p to 55p, for the first 10,000 business miles in a tax year (the 25p rate for mileage in excess of this remains unchanged). The increase is backdated to 6 April 2026.
This is clearly a welcome move for employees, as rates had not changed for 15 years despite various fuel shocks. This led the government to launch a review last month to consider whether the rates were sufficient, particularly for those in lower-paid, travel-heavy roles. Coupled with the periodic spikes in fuel costs, there has been a gradual increase in the general costs of funding and running a car, which AMAPs is also intended to cover. The recent AMAPs increase has pre-empted the outcome somewhat and may be the first hint of longer-term change.
Impact on employers and business mileage costs
While employees may be happy, employers are faced with a decision – pass on the extra 10p per mile, at a cost to themselves, or hold off and expect a backlash. Some employers will have staff driving considerable distances in their own cars and may feel obliged to pay the higher rate, despite the extra cost. Others do not pay AMAPs to employees who regularly travel on business, as they tend to have a company car (and so do not qualify) or receive a car cash allowance and are reimbursed for business travel at the company car (fuel-only) rates.
Most employers we have spoken to recently are generally planning to pay the higher rate, where they already pay AMAPs and make backdated payments to April, or remind employees to claim tax relief back to that date.
For smaller, owner-managed businesses, the increase in rates may present an opportunity to provide more tax-efficient remuneration for directors and employees, subject to the level of business mileage.
What the mileage rate increase means for employees
Employees who are eligible for AMAPs, but are paid less by their employer, have always been able to claim tax relief on the difference, which has now increased by 10p per mile. As noted above, it is usually employees with car allowances who do not receive AMAPs in full and they may already be accustomed to the tax relief claim process. Employers who do not already direct their employees to make such claims may want to do so now given that the increased amounts and in light of the general economic backdrop of tighter budgets and higher costs.
Next steps for employers and outlook on business travel
For some time, employers may have been considering whether business mileage, particularly by car, is wholly necessary, given fluctuations in fuel costs and trends towards different ways of working. There are some roles for which high volumes of travel are unavoidable, but for others, even with (or perhaps because of) this recent AMAPs increase, we might see a gradual reduction in business mileage. Longer-term expansion of EV fleets and accompanying infrastructure may also play a part.
Following the 1 June review, rates applicable to company car drivers and those paid to many employees with car allowances have also increased, albeit more modestly. In the short term, employers will need to consider how best to support employees with the increased costs of business travel. Reviewing mileage policies, employee communications and broader travel strategies will be key to ensuring a balanced and effective approach.
If you would like to discuss how these changes may affect your organisation, or review your current approach to business travel, please get in touch with David Hawley, or your usual RSM contact.