Mileage rate rise boost for workers, but tough choice for employers
Richard Travis-Nash, Tax Director at RSM UK reacts to the latest tax changes for company mileage: “Employers can now increase tax and NIC-free mileage payments for staff using company cars and car allowances as the government looks to ease cost of living pressure for workers.
“This follows HMRC’s decision last week to raise Approved Mileage Allowance Payments (AMAPs) from 45p to 55p per mile for the first 10,000 business miles for employees using their own cars. The 25p rate beyond that threshold remains unchanged, with the increase backdated to 6 April 2026.
“This long-overdue rise, the first in 15 years, will be welcomed by employees, particularly those in lower-paid, travel-heavy roles who have borne the brunt of rising fuel and running costs. The move follows a recent government review prompted by sustained pressure on motoring expenses and spikes in fuel prices due to the conflict in Iran.
“In addition, higher mileage rates can be paid to company car drivers from 1 June, in line with HMRC’s quarterly review process. These increases are more modest, with smaller engine petrol cars seeing a rise from 12p to 14p; 14p to 17p for mid-size, and; 22p to 26p for cars over 2,000cc. Diesel increases are similar – 12p to 15p; 13p to 17p, and; 18p to 23p. These rates will be in place for the next three months. Electric rates remain unchanged.
“For employers, however, it presents a clear dilemma: absorb the additional 10p per mile (or company car equivalent) or risk employee pushback by holding rates where they are. For those with high-mileage workforces, the cost impact could be significant, but increasing rates may also offer a more tax-efficient way to support remuneration.
“More broadly, the change could accelerate existing shifts in how businesses approach travel. While some roles will always require significant driving, others may see a renewed focus on cutting back mileage altogether. Over time, continued investment in electric vehicle fleets and infrastructure is also likely to reshape the landscape.”