What the Mileage Allowance Jump From 45p to 55p Means for Every UK Driver

The tax-free mileage allowance for UK workers using their own vehicles for business has been frozen at 45p per mile since 2011. That fifteen-year freeze came to an end last week when Chancellor Rachel Reeves announced that the rate would rise to 55p per mile, backdated to 6 April 2026. For millions of workers who use their own cars for business journeys, the increase represents the first meaningful adjustment to this allowance in a decade and a half.

Martin Lewis, the Money Saving Expert, described the change as a “really important” development for working drivers during an interview on BBC Radio 5 Live. The Treasury estimates that a worker covering 6,000 business miles a year will save approximately £120 annually as a direct result of the rise. That figure rises with the number of business miles driven, and for those travelling heavily for work, the cumulative benefit across a full tax year is considerably larger.

What Is the Approved Mileage Allowance and Who Does It Apply To

The Approved Mileage Allowance Payment, known in HMRC shorthand as AMAP, is the rate at which employers can reimburse employees, tax-free, for using their own vehicles on business journeys. The rate applies to cars and vans and covers the first 10,000 business miles driven in a tax year. For mileage beyond that 10,000-mile threshold, the rate drops to 25p per mile, a figure that remains unchanged by this announcement.

It is worth being precise about what counts as business mileage under HMRC rules. Journeys to a permanent, fixed place of work, the standard daily commute from home to the office, do not qualify. Business mileage covers travel to client sites, visits to temporary workplaces, journeys to attend meetings at locations other than a regular base, and similar trips that are made for genuine work purposes. Employees who work primarily from home and occasionally travel to a head office may also be able to count those journeys as business mileage, depending on the specific nature of their working arrangement.

The allowance applies equally to self-employed individuals, who can use the mileage rate to claim a deduction on their tax return for the business proportion of their vehicle use, rather than calculating actual fuel, insurance and maintenance costs separately. For freelancers and contractors who cover significant distances for client work, the move from 45p to 55p makes a real difference to the annual tax position.

How the New 55p Rate Works in Practice

The practical effect of the increase depends on the arrangement between an employer and an employee. If an employer moves to paying the full 55p AMAP rate, the employee sees a direct increase of 10p per mile in their reimbursement, all received tax-free. For someone driving 6,000 business miles a year, that is an additional £600 in reimbursed costs annually. For someone driving 10,000 miles, the increase amounts to £1,000 over the course of the tax year.

If an employer pays the old 45p rate but does not increase to 55p immediately, the employee can claim the difference, 10p per mile, as tax relief through their self-assessment return. The relief is received at the employee’s marginal rate of income tax: a basic-rate taxpayer receives 20 per cent of the 10p gap, effectively 2p per mile, while a higher-rate taxpayer receives 40 per cent, effectively 4p per mile. Across several thousand business miles a year, these amounts accumulate to a meaningful sum.

Where an employer pays a rate below 45p, say 30p or 35p per mile, the employee can claim tax relief on the full gap between what they receive and the new 55p AMAP rate. Workers in this position should check their expense records carefully and consider whether to file a self-assessment return if they have not done so previously, as the relief available could be substantial, particularly for those who have been travelling for business without claiming the full allowance.

What the Chancellor’s Announcement Actually Included

The mileage allowance increase was announced by Chancellor Rachel Reeves as part of a package of measures described as the Great British Summer Savings, a series of financial adjustments designed to benefit households directly. The decision to backdate the increase to 6 April 2026, the start of the 2026/27 tax year, means that workers who have already driven business miles since April are entitled to the higher rate for those journeys.

For employees whose employer has been paying 45p per mile since April, they can claim the 10p per mile gap through their 2026/27 tax return. Self-employed workers using the mileage rate on their return can apply the 55p figure to all qualifying business mileage driven from 6 April 2026 onwards. HMRC has updated its guidance to reflect the new rate, and the 55p figure now applies as the standard approved rate for cars and vans.

For context, the previous rate of 45p per mile was set in 2011, when petrol cost significantly less and car finance rates were far lower than they are today. The frozen rate had become increasingly disconnected from the actual cost of running a vehicle for business, which makes the increase to 55p both overdue and directly relevant to the rising cost of motoring that British drivers have been experiencing across the board in recent years.

How to Claim If Your Employer Pays Below 55p

For employees whose employers reimburse below the full AMAP rate, the process for claiming the shortfall as tax relief is manageable for most people. The claim can be made through a self-assessment tax return, or by contacting HMRC directly to request an adjustment to the tax code, which would reduce the income tax deducted from pay each month going forward.

To support a claim, drivers need records of their business mileage. HMRC expects a log showing the date of each journey, the start and end points, the purpose of the trip and the distance covered. Many drivers keep this information in a spreadsheet, and dedicated mileage tracking apps can capture the data automatically using the phone’s GPS, removing the need for manual entries after each trip.

For those who have not previously kept mileage records, starting now is worthwhile. The new 55p rate makes the potential tax saving on business mileage greater than it has been since 2011, and maintaining a log of journeys throughout the tax year is a straightforward way to ensure any allowable relief is properly claimed. Losing track of mileage after the fact is one of the most common reasons people miss out on tax relief they are entitled to.

What About Motorcyclists, Cyclists and Other Vehicles

The AMAP system covers more than cars and vans, though the rate increase announced by the Chancellor applies specifically to those vehicle types. Motorcyclists receive a flat rate of 24p per mile for approved business mileage, regardless of how many miles they cover in the tax year, and that rate remains unchanged. Cyclists who use their bikes for qualifying business travel receive 20p per mile, also unchanged.

For employers who pay above the AMAP rate, any excess is treated as a taxable benefit in kind, which must be reported on a P11D form and is subject to income tax and National Insurance contributions for the employee. Most employers operating mileage reimbursement schemes stay at or below the AMAP rate to avoid this complexity, so the move to 55p as the new benchmark is unlikely to create significant administrative burdens for businesses that follow the standard approach.

The Bigger Picture for UK Motoring Costs

The mileage allowance increase arrives at a moment when the cost of owning and running a car in the UK has reached a level that many households are finding genuinely difficult to manage. Research published this week by ALA Insurance places the total annual cost of car ownership at more than £11,500, up from around £6,500 a decade ago, driven by rises in new car prices, insurance premiums, fuel costs and the expense of motor finance at elevated interest rates.

Against that backdrop, a 10p per mile improvement to the approved mileage rate offers meaningful relief to the workers who use their own vehicles for business, even if it addresses only one part of a much wider affordability picture. The fact that the rate has now been adjusted for the first time in fifteen years at least signals some acknowledgement of how significantly motoring costs have changed since 2011.

For employees who drive regularly for work, making sure the new 55p entitlement is properly reflected in expense reimbursements or tax returns is the most direct action available. Whether that means updating an expenses claim with an employer, starting a mileage log for a self-assessment return, or contacting HMRC about a coding adjustment, the step is worth taking. Over the course of a full tax year, the difference between claiming the correct rate and leaving it unclaimed can run to several hundred pounds.

For a full overview of the other regulatory and legal changes affecting UK drivers in the coming months and years, our guide to the biggest shake-up of UK driving laws in years covers the full range of planned changes to road rules, licensing and vehicle regulations.