On 21 May 2026, the chancellor announced an increase in the rate of business mileage claims, as part of the Great British Summer Savings scheme. From 6 April 2026, the approved mileage rate for cars and vans has risen from 45p to 55p per business mile. This is the first increase in over a decade and a meaningful shift for anyone who uses their own vehicle for work.

The change applies to the first 10,000 business miles in the tax year for income tax purposes, and to all business miles for National Insurance Contributions (NIC).The rate for miles above 10,000 remains unchanged at 25p.

The government has confirmed it will legislate retrospectively, so the 55p rate applies from the start of the 2026/27 tax year, not just from the announcement date of 21 May 2026.

Who is affected?

Employees using their own vehicle for work

If your employer reimburses you for business mileage, payments up to the approved rate are free of income tax and NIC. Where your employer pays less than the approved rate - or nothing at all - you may be able to claim the shortfall as a deduction from your taxable earnings.

Employers

If you reimburse employees for business mileage, now is a good time to check that your rates reflect the new 55p figure. Importantly, if you were already reimbursing at the old 45p rate, you may need to reprocess payroll and affected employees could be due a correction for April and May 2026. If the team at Frost prepare your payroll, we can help you work through what, if anything, needs to be adjusted.

Self-employed individuals

If you are self-employed and use your own vehicle for business journeys, you have two options: claim your actual vehicle costs (with an adjustment for any private use), or use the flat-rate simplified expenses method - which is now 55p per business mile. For many people, the flat-rate option is simpler and, with the increase, potentially more valuable.

Why now?

The rate rise sits within a broader package of transport-related relief measures, introduced by the government in response to rising fuel costs linked to the ongoing Iran conflict. Announced on 20 May 2026, the package also includes:

• An extension of the existing 5p per litre fuel duty cut to the end of 2026
• A reduction in red diesel duty from 10.18p to 6.48p per litre, effective 15 June to end of 2026
• A 12-month vehicle excise duty holiday for most heavy goods vehicles

The government has also committed to a full review of all approved mileage rates - including motorcycles, bicycles and passenger payments, which are unchanged for now - with further details to follow at a future Budget.

A note of caution

The rules around approved mileage allowances (particularly for employees with partial reimbursement, those switching between actual costs and flat rates, or businesses processing retrospective payroll changes) can be more complex than they first appear.

Before making any changes to how you claim or reimburse business mileage, please speak to us. Getting this right from the start will ensure you are claiming everything you are entitled to.

_{This is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this publication can be accepted by the authors or the firm.}