Increase in statutory mileage allowance announced
Following the announcement on 21 May 2026 by the Chancellor Rachel Reeves, HMRC has updated its Employment Income Manual to reflect the newly announced increase in the statutory mileage allowance for the 2026-27 tax year.
What is a mileage allowance?
If an employee drives a personal vehicle as part of their work, their employer can cover these costs per mile. This is known as a Mileage Allowance Payment.
For cars and vans, these allowances have been frozen at 45p amile for the first 10,000 miles (and 25p thereafter) since 2011.
What are the new rates?
The Chancellor has announced a 10p increase in the current rate for the current tax year, giving a revised rate of 55p a mile for the first 10,000 miles, with 25p a mile for additional miles remaining unchanged.
This will come as a much welcome change for employees, with the change being backdated from 6 April 2026.
It is worth noting that this increase only applies to cars andvans. For motorcycles and cycles, the rates remain at 24p and 20p respectively for all business miles. It is understood that these rates will be reviewed at the next Budget.
What does this mean?
For employers, you may want to consider increasing amounts you reimburse your employees to reflect the revised rates moving forwards, including whether you uplift payments already made for April and May 2026 to reflect the backdated increase.
It will also be a good time for employers to revise payroll calculations for April and May 2026, where you have been reimbursing employees for mileage, given the retrospective nature of the increase. Employees who have been reimbursed less (or will be) than the revised rates may wish to consider claiming relief for the difference from HMRC.
Going forward, it is key that employers and employees still keep records of business mileage driven. These should detail dates, start and finish points and number of miles driven.
If you would like to get with the team to discuss these implications further, please contact Eleanor Disney- edisney@leathesprior.co.uk.
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