Mileage allowance increase: what it means for you
22 May 2026 | posted in Business tax
In a welcome move for workers and business owners alike, Chancellor Rachel Reeves has announced the first increase in mileage allowance rates in over 15 years. As part of a broader package aimed at easing the pressure of rising living costs, this change could put more money back into the pockets of employees and the self-employed who rely on their vehicles for work.
Here’s what you need to know:
A long-awaited mileage rate increase
The Approved Mileage Allowance Payment (AMAP) rate has been frozen at 45p per mile for the first 10,000 miles since 2011. However, in her statement to Parliament on Thursday 21 May 2026, Rachel Reeves confirmed that the rate will now rise by 10p to 55p per mile.
Even better, this increase is backdated to April 2026, meaning it applies to all eligible business mileage already undertaken in the current tax year.
As Reeves stated: “I can today announce a 10p per mile increase in tax free mileage rates, backdated to April 2026, benefiting those who need to drive for work, from care workers to plumbers.”
How the New Rates Work
- 55p per mile for the first 10,000 miles in a tax year
- 25p per mile for any mileage above 10,000 miles
- Applies to cars and vans only
- Covers both employees and self-employed individuals
It’s important to note that all other mileage rates remain unchanged and will be reviewed at the next Budget.
Support beyond mileage rates: fuel duty frozen
Alongside the mileage rate increase, the Chancellor also confirmed that fuel duty will remain frozen at 52.95p per litre until at least December 2026. This comes after a planned rise was due at the end of August 2026 and provides further relief for drivers facing ongoing cost pressures.
What the mileage allowance changes mean for the self-employed
If you’re self-employed and use your own vehicle for business, this change is particularly valuable.
When using the option to claim for business miles only (rather than claiming capital allowances and the actual cost of fuel used for business purposes) you can use the AMAP rate to claim tax relief by:
- Calculating your total business miles for the tax year
- Multiplying that figure by the applicable mileage rate
- Deducting the total from your taxable profit on your Self Assessment return
This reduces both Income Tax and National Insurance contributions.
Because the increase is backdated, all qualifying mileage you’ve already driven this tax year can now be recalculated at the higher rate — potentially increasing your allowable expense and reducing your tax bill further.
What counts as business mileage?
To qualify, your mileage must be for genuine business purposes. This includes:
- Travelling to a client or customer site
- Visiting a temporary workplace
- Attending meetings or work-related events
However, you cannot claim for ordinary commuting between your home and a regular place of work.
Good record-keeping is essential. Make sure you log:
- Date of each journey
- Start and destination
- Purpose of the trip
- Number of miles travelled
These records will support your claim if HMRC ever requests evidence.
How does the mileage rate increase affect employees?
Employees also stand to benefit from the increase.
- If your employer pays less than the AMAP rate, you can claim Mileage Allowance Relief through your tax return for the difference.
- If your employer pays more than the AMAP rate, the excess is treated as a taxable benefit and is subject to National Insurance.
Final thoughts
This long-overdue increase brings the mileage allowance more in line with today’s economic reality. For many workers — from tradespeople to care workers — it represents meaningful financial support at a time of rising costs.
If you’re unsure how this change affects your business or personal tax position, it’s worth reviewing your mileage records and speaking to your local Moore adviser. With the increase backdated to April, these changes could make a real difference to your 2026 tax bill.
Get in touch
- Corby accountants: 01536461900
- Peterborough accountants: 01733 397300
- Northampton accountants: 01604 654254