Mileage Allowance Rates 2026/27: What Employers and Employees Need to Know

If you use your own car, van, motorcycle or cycle for business journeys, you may be able to receive mileage payments from your employer without paying tax on them.

For the 2026/27 tax year, HMRC has increased the approved mileage rate for cars and vans from 45p to 55p per mile for the first 10,000 business miles. The rate for additional miles remains 25p per mile.

Understanding how these rates work can help employees check whether they are receiving the correct mileage reimbursement and help employers operate their payroll correctly.

What Are Approved Mileage Allowance Payments?

Approved Mileage Allowance Payments (AMAPs) are payments an employer can make to an employee who uses their own vehicle for qualifying business travel.

An employer can generally pay an approved amount without the payment being subject to Income Tax. The approved amount is calculated by multiplying the employee’s business mileage for the tax year by the appropriate HMRC mileage rate.

The calculation is based on business mileage for the tax year as a whole, rather than treating every individual journey separately.

HMRC Mileage Rates for 2026/27

The approved mileage rates for 2026/27 are:

The increase for cars and vans from 45p to 55p applies from 6 April 2026 and was made retrospective for the 2026/27 tax year.

How Does the 10,000-Mile Limit Work?

The 10,000-mile threshold applies to the total qualifying business mileage during the tax year.

For cars and vans, the first 10,000 business miles are calculated at 55p per mile. Any business mileage above 10,000 miles is calculated at 25p per mile.

For example, if an employee travels 12,000 business miles:

• First 10,000 miles × 55p = £5,500
• Remaining 2,000 miles × 25p = £500
• Total approved amount = £6,000

It is therefore important not to assume that the 55p rate applies to every business mile for Income Tax purposes.

What If Your Employer Pays Less Than the Approved Rate?

Employers are not required to pay the full HMRC mileage rate.

If an employer pays less than the approved amount, the employee may be able to claim tax relief on the difference, subject to the relevant conditions.

Example 1: Employer Pays Less Than the Approved Amount

Ben uses his own car for business journeys and travels 6,000 business miles during 2026/27.

His employer pays him 50p per mile.

Ben receives:

6,000 × 50p = £3,000

The approved amount is:

6,000 × 55p = £3,300

The difference is therefore £300.

As Ben’s employer has paid less than the approved amount, he may be able to claim tax relief on the £300 shortfall.

What If Your Employer Pays the Full Approved Rate?

Where an employer pays no more than the applicable approved amount, the mileage payment can generally be made without Income Tax.

Example 2: Payment Matches the Approved Amount

Andy travels 15,000 business miles in his own car during 2026/27.

His employer pays:

• First 10,000 miles × 55p = £5,500
• Remaining 5,000 miles × 25p = £1,250

Andy therefore receives £6,750.

This matches the approved amount, so the payment can generally be made tax-free.

What Happens If Your Employer Pays More Than the Approved Amount?

The approved amount represents the maximum amount that can normally be paid tax-free under the AMAP rules.

If an employer pays more than the approved amount, the excess may be taxable.

This applies even if the employee believes that their actual motoring costs are higher than the HMRC mileage rate.

Example 3: Employer Pays More Than the Approved Amount

Callum uses his own van for business travel and completes 25,000 business miles during 2026/27.

His employer pays 55p for every mile.

The total payment is:

25,000 × 55p = £13,750

However, the approved amount is:

• First 10,000 miles × 55p = £5,500
• Remaining 15,000 miles × 25p = £3,750
• Total approved amount = £9,250

The excess is therefore:

£13,750 − £9,250 = £4,500

The £4,500 excess is taxable.

National Insurance Rules Are Different

The National Insurance treatment of mileage payments is slightly different from the Income Tax calculation.

For National Insurance purposes, the 55p rate for cars and vans applies to all business miles, rather than only the first 10,000 miles. For motorcycles, the rate is 24p per mile, while bikes are 20p per mile.

For example, an employee who travels 15,000 business miles in their own car has an Income Tax approved amount of:

10,000 × 55p + 5,000 × 25p = £6,750

But for National Insurance purposes, the qualifying amount is:

15,000 × 55p = £8,250

This difference can affect how employers calculate payroll and National Insurance when mileage payments exceed the relevant qualifying amount.

What Should Employers Do?

Employers should review their mileage policies and payroll processes following the 2026/27 rate increase.

If your business continued using the old 45p rate after 6 April 2026, it may be worth checking whether employees have been reimbursed correctly.

HMRC has also highlighted that employers who used the old rates may need to review previous payroll calculations and make corrections where tax or Class 1 National Insurance was overpaid.

Employers should also keep clear records of:

• Business mileage claimed
• Dates and journeys undertaken
• Vehicle type
• Mileage rate used
• Amount reimbursed
• Any difference between the amount paid and the approved amount

Good record-keeping can make it easier to identify errors and support the treatment of mileage payments if HMRC asks for evidence.

Key Points to Remember

The 2026/27 mileage rules are particularly important for employees who regularly use their own vehicles for work.

The main points are:

• Cars and vans receive an approved rate of 55p per mile for the first 10,000 business miles.
• The rate falls to 25p per mile after 10,000 miles.
• The motorcycle rate is 24p per mile.
• The cycle rate is 20p per mile.
• The 55p car and van rate applies from 6 April 2026.
• The approved amount is calculated using business mileage for the tax year.
• Payments below the approved amount may allow the employee to claim tax relief on the difference.
• Payments above the approved amount can result in a taxable excess.
• National Insurance calculations use 55p per mile for all business miles for cars and vans.

Final Thoughts

The 2026/27 increase in the approved mileage rate gives employees a higher tax-free mileage benchmark and means employers should check whether their existing mileage policies remain appropriate.

If your business pays employees for using their own vehicles, reviewing your mileage rates, payroll calculations and records can help prevent unnecessary tax and National Insurance issues.

For specific circumstances, particularly where large amounts of business mileage are involved, professional tax advice can help ensure the correct treatment.

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