Policy paper

Increasing mileage rates

Published 17 June 2026

Who is likely to be affected

Employees who use their own cars or vans for business mileage and employers who pay mileage allowances for such use.

Self-employed individuals, individuals carrying on a business, and partnerships of individuals who use fixed rate deductions for their motoring costs, also known as simplified mileage rates, for Income Tax purposes.

General description of the measure

This measure increases Approved Mileage Allowance Payments (AMAPs) and simplified mileage rates for 2026 to 2027. AMAPs is the rate at which employers can reimburse employees, tax free, for business mileage in a private vehicle. The government has already committed to a review of these rates beyond 2026 to 2027 and will set this out at the Budget 2026.

The per mile rates for cars and vans (cars and goods vehicles for simplified mileage rates) for the first 10,000 miles will be increased from 45 pence per mile to 55 pence per mile. For business miles over 10,000 miles the rate will remain at 25 pence per mile. For National Insurance contributions this also means a consequential increase in the amount that can be disregarded from Class 1 earnings from employees’ Relevant Motoring Expenditure (RME) to a flat rate of 55 pence per mile. The increase is retrospective taking effect from 6 April 2026.

The AMAP rate is advisory, and employers can choose to reimburse more or less. If an employee receives less than the advisory rate, they can claim tax relief from HMRC by applying for Mileage Allowance Relief (MAR) on the difference. If they receive more, they will be liable to pay Income Tax on the difference.

The new rates for mileage will also apply to businesses that use simplified mileage rates, which will be able to deduct the new rates per mile when calculating their taxable profits.

Unincorporated businesses such as self-employed people, businesses and partnerships can deduct the costs of their motoring expenses from their taxable profits by using the simplified mileage rates or by claiming capital allowances and actual expenses. Once either capital allowances or simplified mileage rates are used for a vehicle, that method must continue to be applied as long as the vehicle is used in the business. The current simplified mileage rates allow a deduction of 45 pence per mile for the first 10,000 miles and 25 pence per mile for each subsequent mile, for cars and goods vehicles.

For National Insurance contributions (NICs), employers can deduct from their employees’ earnings Relevant Motoring Expenditure (RME) up to a qualifying amount which is calculated as mileage multiplied by the first AMAP rate, which is now 55 pence. RME covers mileage payments and other related payments, such as a car allowance, and any excess over the qualifying amount is subject to a Class 1 charge.

Policy objective

The increase to AMAP and simplified mileage rates which is also reflected in RME rates was part of a package to support motorists and other fuels users, in response to elevated fuel prices rising from the Iran war. Changes to these rates aim to ensure they better reflect the average costs of motoring. 

Background to the measure

This measure was announced on 21 May 2026.

Detailed proposal

Operative date

This measure will have retrospective effect from 6 April 2026 for tax year 2026 to 2027.

Current law

Sections 229 to 230 of the Income Tax (Earnings and Pensions) (ITEPA) Act 2003 provide for the approved mileage allowance payments for vehicles, and sections 233 to 234 provide for passenger payments. The rate for cars and vans provides the level at which employees using their own vehicles for business mileage can be reimbursed for that use by employers with no chargeable income arising as a result.

The simplified mileage rates (fixed rate deductions for expenditure on vehicles) are set in sections 94D to 94G Income Tax (Trading and Other Income) Act 2005 (ITTOIA). These sections set the types of vehicles that are eligible for the simplified mileage rates and set the amounts allowable as deductions using the rates. Where the simplified mileage rates have been used for a vehicle, section 38ZA of the Capital Allowances Act 2001 prevents expenditure on that vehicle from being qualifying expenditure for capital allowances purposes.

Regulation 22A of the Social Security (Contributions) Regulations 2001 allows for RME to be disregarded from Class 1 earnings up to a qualifying amount calculated with reference to the AMAP rate as set in s229 of ITEPA 2003.

Proposed revisions

Legislation will be included as part of the Taxation (Energy and Vehicles) Bill to alter section 230(2) of the ITEPA 2003 (approved amount for mileage allowance payments), and section 94F(2) of ITTOIA (appropriate mileage amount), for “45p” to be substituted by “55p”.

As consequence of subsection (1), in section 94F(3) of ITTIOA, “45p” is be substituted by “55p”.

The amendments made by this section have effect for the tax year 2026 to 27 and subsequent tax years.

No amendments are being made to National Insurance contributions legislation as the rate for calculating the RME disregard is given in ITEPA.

Summary of impacts

Exchequer impact (£ million)

2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031	2031 to 2032
Empty	Empty	Empty	Empty	Empty	Empty

The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

The impact of this measure on individuals who claim Mileage Allowance Relief or use simplified rates and employees who are reimbursed by their employer will be confirmed at a future fiscal event. 

This measure is not expected to impact on family formation, stability or breakdown.

This measure is expected overall to have no impact on individuals’ experience of dealing with HMRC as the change does not change any processes or tax administration obligations.

Equalities impacts

This measure is expected to impact on employees who use their own cars or vans for business mileage and self-employed individuals. If a protected group is estimated to be overrepresented in these populations, it is considered to be disproportionately impacted.

Those of a typical working age (25-64 years old) are estimated to be overrepresented in the population in receipt of business mileage payments (93%), compared to their prevalence in the UK adult population (66%). Males are also estimated to be slightly overrepresented in this impacted population (56%) compared to in the UK adult population (50%). The population in receipt of business mileage payments is also estimated to have an overrepresentation of people from a White ethnic background (94%) compared to their prevalence in the UK adult population (88%).

Individuals ages 35-64 are estimated to be overrepresented in the self-employed population (68%) compared to their prevalence in the UK adult population. Males are also estimated to be overrepresented in this impacted population (62%) compared to in the UK adult population (50%). There is also a slight overrepresentation of individuals from the Muslim faith in the self-employed population (4.9%) compared to their prevalence in the UK adult population (3.7%).

Where data were available there were no other protected groups overrepresented.

Administrative impact on business including civil society organisations

This measure will have negligible administrative impact to businesses that are employers who will incur a small one-off-cost to adjust to the new rate if they have automated systems for the payment of expenses.

Businesses and third sector organisations can choose whether or not to reflect AMAPs changes in rates.

Businesses that switch from using actual expenditure to using the simplified mileage rate as a result of the higher rates of relief should see a reduction in their overall administrative burdens. The impact of this measure on individual who use simplified mileage rates will be confirmed at a future fiscal event.

This measure would be expected overall to impact businesses’ experience of dealing with HMRC, as more businesses are expected to use a simpler method of calculating taxable profits for their Self Assessment tax returns. This is expected to reduce the complexity of completing these returns and reduce confusion and errors when completing these returns.

This measure is not expected to disproportionately impact civil society organisations.

Operational impact (£ million) (HMRC or other)

HMRC would expect an increase in MAR (mileage allowance relief) claims following the introduction of this measure, as more individuals will be eligible to make a claim, which could lead to an increase in FTE resource required.

Other impacts

These changes are likely to only have a small behavioural impact on driving behaviour, as the changes to these rates aim to ensure they better reflect the average costs of motoring and apply only to mileage undertaken by individuals is a necessary part of work or business activity. Therefore, we estimate that this will not have a significant climate impact.   

Monitoring and evaluation

AMAPs and simplified mileage rates are currently under review, as announced in March 2026 and will be set out at Budget 2026. This measure will be monitored through information collected from tax returns and expense forms and kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about the increase to AMAP rates for employees, contact the employment income policy team by email: employmentincome.policy@hmrc.gov.uk

If you have any questions about the increase to simplified mileage rates, contact the Business Profits team by email: businessprofits.admin@hmrc.gov.uk, including ‘Motoring Expenses’ in the subject line of your email.

Declaration

Dan Tomlinson MP Exchequer Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.