Summary
- Tax-free mileage rate increased by 10p per mile.
- Applies to employees using personal vehicles for business travel and sole traders and partners in a partnership that claim mileage rather than vehicle costs.
- Backdated to April 2026.
- Businesses should review mileage rates and processes.
Introduction
The tax free mileage allowance for employees using their own vehicles for business travel has increased. The amount businesses can pay tax free has increased from 45p to 55p per mile for the first 10,000 miles.
The change is backdated to April 2026.
Considerations
Employers are not required to pay the full tax free amount but any payments within the approved rate are tax and National Insurance free.
Employees may claim tax relief if they are paid below the approved rate but any amounts paid above the tax free amount need to be included on the payroll with tax and national insurance being deducted accordingly.
If employers decide to allow employees to claim the higher tax free amount they should decide if this is backdated to 1 April 2026 or if it only applies going forward. If this is not backdated by the employer, the employee can claim tax relief on the mileage paid to date.
Conclusion
This is a relatively small change, but one that can impact costs and employee expectations.
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