HMRC's approved mileage rate for employees using their own car is 55p per mile for the first 10,000 business miles in 2026/27, and 25p per mile after that. The 55p rate is new — announced in May 2026 and backdated to 6 April 2026 — and it ended fifteen years of the rate sitting frozen at 45p. Motorcycles stay at 24p, bicycles at 20p, and carrying a colleague on a business journey still adds an optional 5p per passenger per mile.
If that is all you came for, you can stop there. But the rate change has some sharp edges for payroll teams — backdated claims, a quirky NIC rule, and the separate advisory fuel rates for company cars — so here is the full picture.
The 2026/27 approved mileage rates
- Cars and vans: 55p per mile for the first 10,000 business miles in the tax year, 25p thereafter
- Motorcycles: 24p per mile, all miles
- Bicycles: 20p per mile, all miles
- Passenger payments: 5p per mile per fellow employee carried on a business journey
Pay an employee at or below these rates for genuine business mileage in their own vehicle and the payment is free of tax and National Insurance, with no reporting. Pay above them and the excess is taxable pay. The rates are published in HMRC's rates and thresholds for employers.
One wrinkle worth knowing: the 10,000-mile taper is an income tax rule. For National Insurance, the approved rate is 55p for all business miles — NIC has never applied the taper. In practice most employers simply pay the tax-approved amounts and the NIC position looks after itself, but if you reimburse a high-mileage driver at 55p beyond 10,000 miles, the excess over 25p is taxable through payroll while remaining NIC-free. Worth a note in the expenses policy rather than a surprise in an audit.
What to do about April and May claims paid at 45p
Because the increase was announced mid-year and backdated to 6 April 2026, any 2026/27 mileage already reimbursed at 45p was underpaid against the approved rate. Employers can top up those claims by the 10p difference without any tax or NIC consequence — it is simply more of the approved amount. Nothing forces you to, but if your policy says "we pay HMRC rates", your employees are owed the top-up, and processing it in one batch is far cleaner than fielding claims one by one.
Mileage Allowance Relief: when the employer pays less
Employers are not obliged to pay the approved rates — some pay less, some pay nothing. Employees can then claim tax relief on the shortfall between what they received and the approved amount. An employee who drove 8,000 business miles and was reimbursed at 30p has a shortfall of 25p × 8,000 = £2,000, worth £400 to a basic-rate taxpayer and £800 at higher rate, claimed through self assessment or a P87.
Two asymmetries catch people out. There is no NIC refund equivalent — the relief is income tax only. And the 5p passenger rate only exists if the employer actually pays it; an unpaid passenger allowance generates no relief at all.
Advisory fuel rates: company cars are a different system
The 55p rate is for employees using their own vehicle — it covers fuel, insurance, servicing and wear. Company car drivers are on a separate, much lower scale: the advisory fuel rates, which cover fuel only and are revised every quarter. From 1 September 2026 the rates are:
- Petrol: 14p (up to 1400cc), 17p (1401–2000cc), 27p (over 2000cc)
- Diesel: 15p (up to 1600cc), 16p (1601–2000cc), 22p (over 2000cc)
- LPG: 11p, 13p and 20p across the same petrol bands
- Electric: 7p per mile for home charging, 15p for public charging — the advisory electric rate now distinguishes between the two
These rates work in both directions: reimbursing a company car driver for business fuel, or charging an employee for private fuel to kill a fuel benefit. You can keep using the previous quarter's rates for up to a month after each change. The split electric rate is recent and genuinely useful: the old single rate, pitched near the home-charging cost, shortchanged drivers who charge publicly at two or three times the price — and where documented actual costs exceed even the 15p rate, reimbursing evidenced actuals with fair apportionment remains open to employers.
Reclaiming VAT on mileage payments
Employers can recover VAT on the fuel element of a mileage payment — not on the full 55p, which mostly represents non-fuel costs. The fuel element is valued at the advisory fuel rate, and since AFRs are VAT-inclusive, the reclaim is the AFR times business miles divided by six. A 2,000-mile quarter in a 1.6 petrol at 17p carries a fuel element of £340 and a VAT reclaim of £56.67 (the fuel element divided by six, since the rates are inclusive of 20% VAT).
The catch is evidence: HMRC expects VAT fuel receipts covering at least the VAT being reclaimed, held with the mileage records. No receipts, no reclaim — and this is one of the first things a VAT inspection samples. If your expenses app captures mileage but bins the fuel receipts, you are leaving recoverable VAT behind or building a compliance gap, depending on what the returns claim. Our VAT recovery team sees both, regularly.
Keeping mileage records that survive scrutiny
Every part of this system leans on the same record: date, start and end points, business purpose, miles. HMRC does not prescribe a format, but reconstructed logs written up at year-end have a way of falling apart under questioning — round numbers, identical journeys, commutes dressed up as business travel. Commuting to a permanent workplace is never business mileage, however the diary describes it.
For employers, the mileage policy is worth a yearly look alongside the payroll setup itself — rate changes like this one, the NIC quirk, and the VAT evidence rule are exactly the things that drift out of date. Our payroll management and employment tax teams fold that review into the annual compliance cycle, which is cheaper than discovering at enquiry time that the policy still says 45p.