Skills and Entrepreneurship 53
HMRC approved mileage rates – what employers need to know
by Brian Ducran
10p does not look capable of causing problems, but put it into a mileage policy, apply it retrospectively and ask payroll what to do with it, and it becomes surprisingly energetic.
For 2026 / 27, the approved mileage rate for employees using their own cars or vans for qualifying business travel has increased from 45p to 55p per mile for the first 10,000 business miles. The income tax rate above 10,000 miles remains 25p. The change has been in effect as from 6 April 2026 and was enacted by the Taxation( Energy and Vehicles) Act 2026, which received Royal Assent on 15 July 2026.
Read that quickly and the conclusion presented is, if an employer still reimburses an employee at 45p, the employee is now owed another 10p? Not necessarily.( If only it were that simple.)
What the 55p rate actually means
This is the distinction that matters. Approved Mileage Allowance Payments set the approved amount for tax purposes. HMRC describes the rate as advisory and says employers can reimburse more or less. The tax change does not, by itself, require an employer to increase its mileage reimbursement to 55p.
A contract, collective agreement or expenses policy may separately determine what an employer has agreed to pay.
What if the employer continues to pay 45p
Suppose an employee completes 1,000 qualifying business miles and receives 45p per mile. The employer pays £ 450.
At 55p, the approved amount is £ 550. The difference is £ 100.
Subject to the relevant conditions, the employee may be entitled to Mileage Allowance Relief on that £ 100 shortfall. However HMRC doesn’ t pay the employee a £ 100. The relief is calculated by reference to the difference between the approved amount and the qualifying mileage payments received. The eventual tax benefit depends on the employee ' s tax position.
So " HMRC will give you the extra 10p " is the wrong conclusion.( You knew that, didn ' t you?)
Employers may need to look backwards
The retrospective start date creates another issue. Consider an employer that paid 50p per qualifying mile earlier in 2026 / 27 and treated the 5p above the old 45p rate as taxable. Following the increase to 55p, that payment may be within the approved amount.
HMRC addressed this in its Employer Bulletin published on 19 August 2026. Where mileage payments or Relevant Motoring Expenditure were paid above the old rates and income tax or class 1 national insurance contributions were deducted, some deductions may no longer be due. Earlier payroll periods may therefore need correcting.
For employers that paid more than 45p earlier in the tax year, they may now have the problem of going back to correct the payroll if tax or national insurance was deducted on amounts that are now covered by the new 55p rate.( See what I mean by:“ If only it were that simple?")
Income Tax and National Insurance take different routes
There is another issue. For income tax, car and van rates falls from 55p to 25p after 10,000 qualifying business miles.
Not for national insurance purposes, where the qualifying rate for Relevant Motoring Expenditure remains 55p for every qualifying business mile. Relevant Motoring Expenditure can also include certain other cash payments towards the use of an employee ' s vehicle.
The spreadsheet can replace 45p with 55p in seconds. Unfortunately, it cannot tell you whether you have changed the right calculation. The same 55p figure also appears in the simplified-expenses rules for eligible self-employed businesses, where it performs another job, helping to calculate deductible vehicle costs.
This is the practical lesson. Do not begin with " Where is the extra 10p?" Start with the better question: " What is this particular 55p being used to calculate?"
Once that is clear, the apparent contradictions disappear.
The number is simple. Understanding what the number is doing is where the real mileage begins.
Brian Ducran is senior partner and head of tax compliance at C & B Partners Limited
https:// cbpartnerslimited. co. uk