As part of a wider package to support households and workers, the Government has confirmed an increase to the tax‑free mileage rate for those using their own vehicles for work.
In this article we review:
- What is changing
- What it means for employees
- What it means from an accounting perspective
- What businesses should now be doing
What’s changing?
The Chancellor has announced a 10p per mile increase in tax‑free mileage rates for the 2026/27 tax year, backdated to April 2026.
This means the standard rate for cars will increase from 45p to 55p per mile for the first 10,000 miles.
What does this mean for employees?
This increase applies to employees who use their own vehicles for business journeys (excluding commuting).
On average, it will save around £120 for someone travelling 6,000 business miles per year using their own vehicle for work.
Mileage payments made at or below the approved rate remain free from tax, making this a straightforward way for employers to reimburse staff.
Wider Context
The change forms part of a broader set of measures to support the cost of living. This includes the extension of the fuel duty cut until the end of the year, which is estimated to have saved motorists around £120 since 2025.
From an accounting perspective
Alongside the temporary VAT changes announced for the summer, this reflects a broader, targeted approach to supporting both household finances and business activity.
For employers in particular, the mileage increase introduces some immediate administrative considerations.
What should businesses be thinking about?
- Payroll and mileage policy changes – reviewing reimbursement policies and updating systems to reflect the new rates
- Communication with employees – ensuring staff understand the updated mileage allowances
- Cash flow and cost planning – factoring higher mileage reimbursements into budgets
These updates should be implemented as soon as possible, particularly as the change is backdated to April 2026.
In summary
The mileage rate increase is a positive step for employees and business owners who rely on their own vehicles for work, providing higher tax-free reimbursement at a time of rising costs.
If you would like support reviewing your mileage policies or business costs, our team would be happy to help.
Get in touch at info@wallacewhite.com if you’d like tailored advice.