Increase in HM Revenue & Customs Approved Mileage Rate

The chancellor announced the approved mileage rate allowance has increased from 45p to 55p per mile. This is being backdated to 6 April 2026 and applies to cars and vans. This is the first time the rate has increased since 2011! The increase in the approved mileage rate is due to growing pressure due to rising fuel and motor insurance prices.

What does the increase to the approved mileage rate mean for employers

The increased rate of 55p per mile applies for the first 10,000 business miles. The approved mileage rate after 10,000 business miles will remain at 25p per mile.

If employees or directors use a personal vehicle for work related travel, they can claim business mileage at the new rate and make backdated expense claims to 6 April 2026 for the increased rate.

The mileage payments are tax deductible, however, although there is a tax saving, it comes with additional cost and admin pressure to consider.

What if your employer pays below the approved mileage rate

If your employer pays business mileage at a rate lower than the approved 55p per mile (or 45p per mile pre-6 April 2026) you can make a mileage allowance relief (MAR) claim for the current tax year and previous four tax years. This can be done on a self-assessment tax return or directly through HMRC using the following link:

https://www.gov.uk/tax-relief-for-employees/vehicles-you-use-for-work

What if Your Employer pays above the approved rate

If you are paid over the approved mileage rate, the difference must be reported by your employer. This is reported on a form P11D or processed through the payroll being subject to PAYE.

Can I claim mileage as a self-employed individual

If you are self-employed and use your own vehicle, you can claim business mileage in exactly the same way as an employee for work related travel. You can do this by logging the business mileage and claiming the expense on your tax return.

If you use your vehicle a lot for business, it may be more beneficial to claim a percentage of the overall running costs. These running costs could be insurance, road tax, servicing and fuel. Your accountant can assist with this calculation.

Can you reclaim input VAT on mileage claims

If your business is VAT registered you can reclaim input VAT on business mileage. This is not available on the full 55p per mile. The VAT is calculated on the fuel portion alone and is dependent on the fuel and engine size of the vehicle.

If you need help working out anything that we have discussed above, please contact your local Perrys branch.