Mileage Allowance Increase in 2026: What It Means for You

After more than a decade without change, the government has finally announced a significant increase to mileage allowance rates — a move that will bring welcome financial relief to employees who use their own vehicles for business travel.

This long-awaited update reflects rising fuel and vehicle costs and ensures that workers are better supported when covering business miles.

🔑 Key Changes to Mileage Rates

Here’s a clear breakdown of what’s changed:

• ✅ Mileage rate for cars increased by 10p per mile

  
  

• ✅ New rate: 55p per mile (for the first 10,000 business miles per tax year)

  
  

• ✅ Previous rate: 45p per mile (unchanged since 6 April 2011)

  
  

• ✅ All other mileage rates remain unchanged

  
  

• ✅ Backdated to 6 April 2026

  
  

This means that eligible employees may benefit retrospectively, potentially receiving additional tax relief or employer reimbursements for earlier travel in the tax year.

👩‍💼 What This Means for Employees and Employers

For Employers

Employers can reimburse employees for business travel using their own vehicles tax-free, as long as payments do not exceed the HMRC-approved mileage allowance rate.

With the increase:

• Employers can now reimburse up to 55p per mile tax-free

• Payments above this threshold may be treated as taxable income

For Employees

The updated rate directly affects how much you can:

• Receive tax-free from your employer

• Claim back through HMRC if underpaid

If your employer doesn’t pay the full rate — or does not reimburse at all — you still have options.

How Mileage Tax Relief Works

Mileage allowance isn’t just about reimbursements — it also determines eligibility for tax relief.

✅ Scenario 1: Full Reimbursement

If your employer pays the full 55p per mile:

• ✔️ You pay no tax on the reimbursement

  
  

• ✔️ You cannot claim any additional tax relief

⚠️ Scenario 2: Partial or No Reimbursement

If your employer pays less than 55p per mile, you can claim tax relief on the difference.

Example:

Approved rate:     55p per mile  
Employer pays:     40p per mile  
Shortfall:         15p per mile  

➡️ You can claim tax relief on the 15p difference

⚠️ Important: This is tax relief, not a full reimbursement ⚠️

You will receive relief based on your income tax rate (e.g., 20% or 40%), not the full 15p.

📊 Why This Matters

This change is significant because:

• The previous rate had been frozen since April 2011

• Fuel, insurance, and maintenance costs have risen sharply over that time

• Employees using their own vehicles were increasingly out of pocket

The increase helps rebalance that gap — although some argue it still may not fully reflect real-world driving costs.

📝 How to Claim Mileage Tax Relief

If you’re eligible, claiming tax relief is straightforward.

You can claim through:

• ✅ HMRC’s online service

• ✅ Self Assessment tax return (if you already complete one)

⏳ How Far Back Can You Claim?

You can typically claim for up to 4 previous tax years.

This means you may be able to backdate claims (especially if your employer has historically underpaid mileage).

📌 Practical Tips

To make sure you maximise your entitlement:

• ✔️ Keep accurate records of your business mileage

• ✔️ Log dates, locations, and purpose of trips

• ✔️ Check your employer’s mileage reimbursement policy

• ✔️ Review past claims — you might be owed money

🚀 Final Thoughts

The increase to 55p per mile marks a major shift after years of stagnation. For many employees, it provides a fairer system and an opportunity to recover costs more effectively.

Whether you’re already receiving mileage payments or need to claim tax relief yourself, this update is worth reviewing — especially with the possibility of backdated benefits from April 2026.