HMRC increases mileage rate to 55p: What it means for employers, employees and the self employed

In the largest ever uprating (and the first change seen for 15 years) a 10p per mile increase in tax free mileage rates for this tax year, backdated to 6 April 2026, has been introduced.

Increasing the tax free per mile rates from 45p to 55p per mile for the first 10,000 miles will save around £120 for a worker doing 6,000 business miles this year. Up to two million employees and one million self-employed people are expected to benefit.

Here we summarise what this change means for employers, employees and those who are self-employed.

What this means for employers

Employers who reimburse employees for business mileage will need to consider whether to pay the increased rate and ensure payroll and expenses systems are up to date.

As the changes are backdated (to 6 April 2026), employers may also need to consider when they introduce the changes to their expenses process and their treatment of employees who have already made their April/May expense claims.

The change means:

• Reimbursements made within the HMRC approved rate are free from tax and National Insurance contributions.
• It gives employers an opportunity to reassess and enhance employee benefits.
• It helps businesses keep mileage reimbursement policies fair, competitive, and aligned with current HMRC guidance.

For instance, an employee travelling 5,000 business miles annually could receive up to £500 more each year compared with the previous rate. This makes it an appropriate time for employers to review existing mileage policies and confirm they remain compliant with HMRC rules.

Businesses that continue reimbursing at lower rates may face increased dissatisfaction from employees, particularly in roles where business travel forms a significant part of day-to-day duties.

What this means for employees

Employees who are reimbursed at less than 55p per mile — for example, 35p per mile — may be entitled to claim Mileage Allowance Relief (MAR) from HMRC. This allows tax relief to be claimed on the difference between the amount paid by the employer and the approved mileage rate.

For example, where an employer pays 35p per mile, leaving a 20p gap below the HMRC approved rate, the employee can claim tax relief on that 20p difference through HMRC’s Job Expenses process, helping to reduce the financial shortfall.

What this means for self-employed individuals

The revised mileage rate may also provide meaningful savings for self-employed individuals and sole traders.

You can now:

• Claim 55p per mile as an allowable business expense
• Deduct this expense from business profits through your Self-Assessment tax return

This reduces taxable profit and can lower your overall tax liability. For individuals who regularly drive for work purposes, the financial benefit over the course of a year could be considerable.