Mileage allowance rate increased to 55p along with other rate changes

Mileage Allowance Rate Increased to 55p per Mile

In a welcome update, the Government has announced a 10p increase in mileage allowance rates for the whole of the 2026/27 tax year, the first time the mileage rate has increased since 2011.

The mileage rate for cars and vans has increased to 55p per mile, up from 45p a mile, for the first 10,000 business miles in the tax year.

The increase applies to approved mileage allowance payments (AMAPs), mileage allowance relief (MAR), and self-employed mileage. 

Importantly, this change is backdated to 6th April 2026, so employees, Directors and sole traders can claim at the higher rate for any business miles they have driven since the start of the current tax year.

The rise is tax-free, meaning on the first 10,000 business miles, Company Directors, employees and sole traders can now be reimbursed by £1000 more than previously allowed.

From 10,001 miles and above, the rate will remain at 25p per mile.

Those who are self-employed will be able to use the new rates in their 2026-27 tax return.

Employers can still decide the amount they reimburse their employees for business mileage, paying over or under the 55p per mile rate. 

If employers choose to pay above the 55p per mile rate - to better reflect the true cost of running a car or van - the amount above 55p becomes a taxable benefit in kind, and creates a national insurance liability for both employees and employers.

If your business previously reimbursed employees above the old 45p rate, where income tax and NI contributions have been deducted, you may need to re-run your payroll for April and May to account for the increase.

Fuel Duty 

The Government has also announced that the 5p Fuel Duty cut will be extended until 31st December 2026. 

The increases planned on 1st September 2026, and 1st December 2026 will no longer go ahead. The main rate of Fuel Duty will remain at 52.95p per litre. 

Red Diesel Rate Cut

In a small boost for farmers and other qualifying industries, the duty rate on red diesel will be cut from 10.18p per litre to 6.48p per litre from 15th June until 31st December 2026. 

Heavy Goods Vehicle (HGV) Vehicle Excise Duty (VED) Holiday

In a welcome boost for haulage businesses, over the next 12 months, when hauliers renew their HGV VED, they will only pay £1, which the government claim will save a typical HGV over £600.

Any Questions? Need help? Get in touch with us...

There is no such thing as a silly question. If you're a business owner and have any questions about these changes, please get in touch with us and we will be happy to help you.

More details about each of these changes can also be found on the GOV.UK website