Business mileage allowance to rise to 55p

Chancellor Rachel Reeves has announced the first increased to the approved mileage allowance for both employees and the self-employed who use their own vehicles for work.

Since 2011, the allowance has been frozen at 45p per mile for the first 10,000 business miles in a tax year. This will rise to 55p per mile, with the change backdated to the start of the 2026/27 tax year. The rate for mileage above 10,000 miles remains unchanged at 25p per mile; rates for motorbike (24p per mile) and bicycles (20p per mile) are also not changing. Different rules also apply for those using a company car.

The mileage rate covers the cost of fuel (including EV charging as well as conventional motor fuels), as well as overall running costs of the vehicle such as insurance, repairs, vehicle tax and MOT costs, which cannot be additionally claimed separately when claiming the 55p mileage allowance.

For those using their own car or van for work, mileage can be claimed at the new rate for eligible journeys such as:

• travelling between client sites
• visiting customers or suppliers
• care workers driving between appointments
• attending temporary workplaces
• travelling to meetings away from your normal workplace

Businesses reimbursing business mileage will need to consider whether to pay the increased rate, and ensure payroll and expenses systems are up to date. As the changes are backdated, this will also need to be taken into account. If the full rate is not paid, employees may be able to claim tax relief on the difference.

For the self-employed, the higher 55p mileage rate can be claimed under the simplified expenses method.

The change to the approved mileage allowance comes alongside a number of cost-of-living measures announced by Chancellor Rachel Reeves in light of rising fuel prices and current conflict in Iran. Fuel duty will remain frozen at 52.95p per litre until at least December. A temporary cut in VAT from 20% to 5% is also planned for certain family activities between 25 June and 1 September 2026, including children’s restaurant meals, child and family tickets in cinemas, theatres and other attractions like theme parks and zoos. Free bus travel for childen aged 15 and under is also being considered for August 2026, subject to local operators’ participation.