Fuel mileage rates increase to 55p per mile

The government announced on the 21^st May, that the tax-free mileage rate for employees and the self-employed will increase, with this being backdated to 6^th April this year. This can increase the money in your pocket by up to £500 per year if you drive over 10,000 miles for business.

Background to the announcement

The rate was first introduced in 2002, and at that point it was set at 40p per mile for cars for the first 10,000 miles then falling to 25p per mile (For motorbikes the rate was 24p per mile). This was followed by an increase in 2011 from 40p to 45p per mile for the first 10,000 miles.

The announcement yesterday sees this rate increased from 45p to 55p for the first 10,000 miles, with no change to the 25p rate above this mileage threshold. Whilst this 10p rise represents a 22% increase, as it has been frozen for 15 years until now, this does not even start to keep up with the increase in fuel costs over this time.

What the rates mean for self-employed individuals

For the self-employed, you just need to use the higher rate of 55p when preparing your 2026/27 tax return next year – no action is needed until then. If we prepare your return, we will obviously take this into account on the mileage details you give us.

What employers will need to do

For employers, you will need to consider your policies and if you want to increase your reimbursement to the new 55p per mile limit (for the first 10,000) without there being any tax or national insurance due (and you can claim corporation tax relief on these payments). You might also want to consider backdating this for payments already made to employees since 6th April 2026.

How employees are affected

For employees, your employer is not obliged to pay the higher rate, and not all will do so. In this case, you can claim a refund from HMRC – to get tax relief on the difference between what your employer pays you and the 55p rate. However, this is only tax relief, at 20%, 40% or 45% – not the full 100% amount of the difference.

How Gravita can help

Whether you are an employer looking at your policies and payrolls, or an employee or self-employed individual looking at the extra amount you can claim, please do get in touch with your usual Gravita contact if we can help in any way. We can also provide comprehensive advice on benefits in kind generally.