The New HMRC Mileage Rates: 5 Top Reasons to Update Your Business Claims Process Today

When was the last time your business reviewed its mileage claim process? If you are like most fast-growing firms, team members submit expenses, finance reviews them against standard rates, and the cycle continues. However, on 21 May 2026, the Chancellor announced the first change to the Approved Mileage Allowance Payment (AMAP) rate in 15 years.

From 6 April 2026, the AMAP rate for team members using their own cars or vans for business travel has increased from 45p to 55p per mile for the first 10,000 miles per year. This same 10p increase also applies to the simplified expenses regime for self-employed individuals.

If your business has not updated its expense policies or cloud accounting workflows to reflect this backdated change, it could be facing unnecessary administration and inaccurate financial reporting. Here are the top reasons to update your mileage process immediately.

1. Ensuring Compliance with Backdated Rates

Because the rate increase was announced in May 2026 but backdated to 6 April 2026, companies must adjust claims already processed at the start of the tax year. Updating your internal mileage policy immediately ensures that all future claims are accurate and prevents a growing backlog of retrospective adjustments.

2. Maximising Tax-Free Reimbursements for Team Members

With rising motoring costs, team members driving their own vehicles for work purposes face increased financial pressure. Passing on the full 55p per mile rate allows businesses to support their team members with the maximum tax-free reimbursement allowed by HMRC, boosting morale without increasing their personal tax burden.

3. Streamlining Your Cloud Accounting Automation

Modern platforms like Xero, FreeAgent, and QuickBooks rely on accurate default expense templates. Updating your mileage tracking apps (such as MileIQ or Xero Expenses) to the new 55p rate ensures that your cash flow calculations, profit and loss statements, and tax projections remain perfectly accurate in real-time.

4. Maintaining Accuracy Across Tiers and Vehicle Types

While the initial rate has changed, several key rules remain exactly the same. Failing to update your system carefully can lead to costly errors. A structured process ensures your business remembers that:

• Business mileage after 10,000 miles remains at 25p per mile for income tax purposes.

• National Insurance calculations now use the 55p rate across all mileage, removing the previous tier system for NI.

• Rates for motorcycles (24p) and bicycles (20p) remain entirely unchanged.

• Passenger payments for car-sharing remain at 5p per passenger per business mile.
  
  

5. Aligning Mileage Expenses with the Tax Year

For sole traders and partners using the simplified expenses system, profits must be calculated using the mileage rates applicable to that specific tax year. If your business accounting period does not match the standard tax year, calculations must be split and weighted accurately to ensure compliance with HMRC’s worked examples.

Risks and Trade-offs

While adopting the higher rate is highly beneficial for team member satisfaction, business decision-makers should consider the wider practical implications:

• Cash Flow Impacts: An extra 10p per mile represents a 22% increase in travel expense costs. For businesses with large field teams or recruitment consultants travelling frequently, this will noticeably increase operational costs and reduce short-term cash flow.

• Administrative Burden: Processing backdated adjustments for claims made between April and May 2026 requires administrative time. Finance teams must carefully audit older claims to prevent duplicating or missing retrospective top-up payments.

• The 10,000-Mile Ceiling: The decision to leave the over-10,000-mile rate at 25p means that your highest-frequency drivers still face significant out-of-pocket costs due to inflation. Businesses must decide whether to stick strictly to HMRC rates or pay a higher internal rate, which would introduce a reportable benefit-in-kind.

Frequently Asked Questions (FAQs)

Q: What are the new HMRC mileage rates for 2026?

From 6 April 2026, the Approved Mileage Allowance Payment (AMAP) rate for cars and vans increased to 55p per mile for the first 10,000 business miles. Mileage over 10,000 miles remains at 25p per mile. Motorcycle rates stay at 24p, and bicycle rates remain at 20p.

Q: Do the new 55p mileage rates apply to the self-employed?

Yes. HMRC has updated the Simplified Expenses rules for the self-employed to mirror the employee increase. For the 2026-27 tax year, self-employed individuals can claim 55p per mile for the first 10,000 business miles driven in a car or goods vehicle, and 25p per mile thereafter.

Q: How do I handle business mileage claims that were already paid at 45p?

Because the Chancellor's announcement on 21 May 2026 was backdated to 6 April 2026, businesses can pay a retrospective top-up of 10p per mile to team members for any business travel conducted during that interim period. Cloud accounting systems should be updated to ensure future claims are automatically calculated at the 55p rate

Contact Inform Accounting today to speak with an expert and ensure your business processes are fully optimised for the new tax year.