Mileage Allowance Now Permanently 55p A Mile: How Much Tax You Save
Index:
Mileage Allowance Now Permanently 55p a Mile: How Much Tax You Save (UK Budget 2026)
The tax-free mileage rate for cars and vans is 55p a mile for the first 10,000 business miles from 6 April 2026, and the Budget on 28 October 2026 made it permanent. From 6 April 2027 the rate above 10,000 miles rises from 25p to 35p. A basic rate employee driving 6,000 business miles saves £120 a year.
For the 2026/27 tax year that means 55p and 25p, and from 2027/28 onwards 55p and 35p. If you are self-employed the saving is larger than the headline, because the extra deduction also cuts your Class 4 National Insurance. Whether you get any of it depends on how you claim, and for many van-owning tradespeople the 55p rate is not available at all.
What are the mileage rates for 2026/27 and 2027/28?
The approved mileage rates are the amounts per business mile that an employer can pay you tax-free for using your own vehicle, and the same figures set the flat-rate deduction many self-employed people use.
Vehicle | 2025/26 | 2026/27 | From 2027/28 |
Car or van, first 10,000 business miles | 45p | 55p | 55p |
Car or van, above 10,000 business miles | 25p | 25p | 35p |
Motorcycle | 24p | 24p | 24p |
Bicycle | 20p | 20p | 20p |
The 2026/27 figures are on GOV.UK's page on tax relief for vehicles you use for work. The 55p rate was first announced in May 2026 as a temporary measure backdated to 6 April 2026, and the Budget 2026 report confirms it is now permanent and adds the 35p upper rate from 6 April 2027. The Treasury expects around 2 million employees and 1 million self-employed people to benefit, at a cost of £200 million in 2027/28.
How much tax does the 55p rate save you?
The saving is the extra pence per mile, multiplied by your business miles, multiplied by your marginal rate of tax: 20% for a basic rate employee, 40% for a higher rate employee, and 26% for a basic rate self-employed person once Class 4 National Insurance at 6% is added.
The gain over the old rates, for a full year, works out as follows:
Business miles | Basic rate employee, 2026/27 | Basic rate employee, 2027/28 | Basic rate self-employed, 2026/27 | Basic rate self-employed, 2027/28 |
6,000 | £120 | £120 | £156 | £156 |
10,000 | £200 | £200 | £260 | £260 |
15,000 | £200 | £300 | £260 | £390 |
The 15,000-mile line shows when the 35p rate matters. In 2026/27 your 5,000 miles above the threshold still earn 25p, so the total allowable figure is £6,750 against £5,750 under the old rates. From 2027/28 it is £7,250, which is £1,500 more than the old rates gave.
A higher rate employee doubles the employee figures, so £240 at 6,000 miles. If you pay Scottish Income Tax, your relief follows your Scottish band: 20% at the basic rate, 21% at the intermediate rate and 42% at the higher rate for 2026/27. The mileage rates themselves are the same across England, Scotland, Wales and Northern Ireland.
The video with this article runs through these three cases: an employee, a sole trader and a CIS subcontractor. Its conclusion is that the method you claim under matters more than the rate itself.
Interactive UK Mileage Tax Savings Dashboard
This interactive dashboard helps you instantly calculate how much tax you could save following the permanent increase of the UK approved mileage rate to 55p a mile. Simply use the sliders to input your annual business mileage, select your employment status, and indicate any pence per mile your employer already reimburses. The tool will then generate a personalised breakdown of your potential tax relief whilst providing a clear visual comparison of your savings across recent tax years. Furthermore, it outlines crucial eligibility rules, ensuring you know exactly how factors like capital allowances or CIS subcontractor status might affect your claim.
What if your employer pays less than 55p?
If your employer pays you less than the approved rate, you can claim Mileage Allowance Relief (MAR) on the difference, which reduces your taxable pay rather than putting cash in your hand.
HMRC's Employment Income Manual on Mileage Allowance Relief sets out the calculation: your business miles at the approved rates, less whatever your employer paid. If you drive 6,000 business miles and your employer still pays 45p, the shortfall is £600 and a basic rate taxpayer gets £120 back. If your employer pays nothing, the relief is on the full £3,300.
You can claim for the current tax year and the four before it, so the 2026/27 shortfall can be claimed until 5 April 2031. You claim through HMRC's online service, or on your Self Assessment return if you already file one.
MAR only gives Income Tax relief. If your employer pays you the full 55p, the payment is free of both tax and National Insurance, so a full reimbursement is worth more to you than the same amount claimed back as relief. Anything your employer pays above 55p for the first 10,000 miles is taxable.
Should you use 55p a mile or your actual vehicle costs?
If you are a sole trader or in a partnership without a company as a partner, you can deduct the flat mileage rate instead of the real costs of running your vehicle, but only on the conditions in HMRC's Business Income Manual on simplified motor expenses.
Two of those conditions decide most cases. If you have ever claimed capital allowances on a vehicle, you cannot use the flat rate for it. And once you choose the flat rate for a vehicle, you must keep using it until you replace that vehicle.
That first rule catches a lot of tradespeople. If you bought a van and claimed the cost against your profits through capital allowances, the 55p rate is not available for that van, however many miles you drive. You claim fuel, insurance, repairs and the business share of finance costs instead. The choice comes up again when you replace the van.
The decision boundary for a new vehicle is simple to state. At 10,000 business miles, the flat rate gives you £5,500. If your business share of running costs plus the capital allowances you could claim on the vehicle comes to more than that, actual costs give the bigger deduction, at least in the early years. If your vehicle is cheap to run, the flat rate usually wins, and it needs far fewer records. Limited companies cannot use the flat rate at all; as a director you would be paid mileage by your company instead.
If your accounts run to a date other than 5 April, your profits are taxed on a tax-year basis under the rules in HMRC's guidance on the tax-year basis. Mileage in an accounting year that straddles 6 April 2026 or 6 April 2027 has to be split between the old and new rates.
What if you are a CIS subcontractor?
If you are a subcontractor under the Construction Industry Scheme (CIS), your contractor deducts tax from the labour part of your payments, and a bigger mileage deduction usually turns into a bigger refund when you file your return.
Example: a labour-only subcontractor based in Milton Keynes in 2026/27. A sole trader works on sites across Milton Keynes, Northampton and Luton, earns £48,000 gross, and has £9,600 deducted under CIS at 20%. They drive 12,000 business miles in a car they have never claimed capital allowances on, and have £2,000 of other expenses.
Old rates (45p and 25p) | 2026/27 rates (55p and 25p) | |
Mileage deduction | £5,000 | £6,000 |
Profit | £41,000 | £40,000 |
Income Tax at 20% above £12,570 | £5,686.00 | £5,486.00 |
Class 4 National Insurance at 6% above £12,570 | £1,705.80 | £1,645.80 |
Total tax and National Insurance | £7,391.80 | £7,131.80 |
CIS refund (£9,600 less the total) | £2,208.20 | £2,468.20 |
The higher rate adds £260 to the refund. If the same subcontractor had claimed capital allowances on the car, the answer would change: the flat rate would not be available, and the deduction would depend on their actual costs.
The point at which this stops being simple is when you have more than one vehicle, a van with capital allowances history, a non-April year end, or an employment alongside your self-employment. Each changes which rate applies and how. Atlas Tax Advisors' Self Assessment service for sole traders and subcontractors would check which method each vehicle can use, work out the mileage deduction from your records, reconcile your CIS statements, and file your return so the refund is claimed in full.
What counts as a business mile?
A business mile is a journey you make for your work, not your ordinary commute between home and a permanent workplace. Driving to a site you work at for a limited period is business travel, but a site you expect to attend for more than 24 months stops being a temporary workplace.
For each journey, keep the date, the start and end postcodes, the reason and the miles. HMRC asks employees claiming MAR to send copies of mileage logs, and a self-employed claim stands or falls on the same records if HMRC asks.
What to do before 31 January 2028
From 6 April 2026: record every business journey with date, postcodes, reason and miles, and total your business miles for each vehicle.
By 5 April 2027: if you are an employee, check what your employer paid per mile for 2026/27 and ask whether it has paid the 55p rate backdated to 6 April 2026.
After 5 April 2027: claim Mileage Allowance Relief on any shortfall through HMRC's online service, or on your Self Assessment return.
Before you file: if you are self-employed, check whether each vehicle has ever had capital allowances claimed on it, and use the flat rate only where it is allowed.
From 6 April 2027: apply 35p to business miles above 10,000 in the 2027/28 tax year.
By 31 January 2028: file your 2026/27 Self Assessment return and pay any balance, or receive your CIS refund.
Free Executive Briefing: HMRC Mileage Allowance Overhaul and Key Financial Provisions of Budget 2026 (By ATA)
FAQs
Is the mileage rate the same for an electric car?
Yes. The 55p and 25p rates for 2026/27, and 55p and 35p from 2027/28, apply to cars and vans whatever their fuel, including fully electric vehicles. There is no separate approved mileage rate for electric cars you own.
I am a company director using my own car. Can my company pay me 55p a mile?
Yes. Your company can pay you up to 55p a mile for the first 10,000 business miles in 2026/27 free of Income Tax and National Insurance, and deduct the cost against its profits. If it pays less, you can claim Mileage Allowance Relief on the difference, like any other employee.
Can I claim 55p a mile for journeys I made in 2025/26?
No. The 55p rate applies to business miles from 6 April 2026. Journeys in the 2025/26 tax year stay at 45p for the first 10,000 miles and 25p above that, and any late claim for that year uses those rates.
Do I need to fill in a Self Assessment return to claim the higher mileage rate?
Not if you are an employee and do not already file one. You can claim Mileage Allowance Relief through HMRC's online service with your mileage records. If you already file a Self Assessment return, you claim it there instead.
Disclaimer
The article content is checked against primary sources, including GOV.UK and HMRC guidance and manuals, and is reviewed at least annually. Worked examples and figures are illustrative and are included to show how the rules apply in principle. They are not a calculation of your own liability.
Tax is highly fact-sensitive. Small differences in circumstances, timing, residence, or structure can change the outcome significantly, and the rules themselves change frequently. This article is therefore general information and is not advice for your situation. You should not act, or refrain from acting, on the basis of this article alone. Atlas Tax Advisors accepts no liability for any loss arising from reliance on it without taking advice. For your specific situation, please contact us or any professional accountant.
Comments