On 21 May 2026, Chancellor Rachel Reeves announced the first increase to the Approved Mileage Allowance Payment (AMAP) rate since 2011. The rate for cars and vans rises from 45p to 55p per mile for the first 10,000 business miles in the 2026/27 tax year, backdated to 6 April 2026. The change is part of the Government’s Cost of Living support package and was described by MoneySavingExpert’s Martin Lewis as “really important” – a measure he believes will benefit millions of UK workers whose motoring costs have risen sharply since the rate was last set fifteen years ago.
At Williamson & Croft, our tax and payroll teams across our Manchester and Liverpool offices are already helping clients understand the practical implications – from updating mileage policies and processing backdated payroll adjustments, to advising employees on their Mileage Allowance Relief entitlements. This article sets out everything you need to know.
What’s changed: The new HMRC approved mileage rates
The AMAP rate is the maximum amount an employer can pay an employee – tax-free – for using their own vehicle on business journeys. HMRC updated its official guidance on 21 May 2026 to confirm the following rates for the 2026/27 tax year:
| Vehicle type | First 10,000 business miles | Each mile over 10,000 |
| Cars and vans | 55p (up from 45p) ✦ | 25p (unchanged) |
| Motorcycles | 24p (unchanged) | 24p (unchanged) |
| Bicycles | 20p (unchanged) | 20p (unchanged) |
✦ For NIC purposes only, the 55p rate applies to all business miles — the 10,000-mile threshold does not apply for National Insurance.
The passenger payment rate for employees carrying colleagues on business journeys remains at 5p per passenger per business mile, unchanged. The previous 45p rate had been frozen since the 2011/12 tax year, despite fuel costs, insurance and vehicle maintenance rising considerably in the intervening fifteen years.
Why the rate was frozen, and what finally changed it
The AMAP rate had drawn sustained criticism from motoring organisations, trade unions and tax professionals for well over a decade. The RAC Foundation’s analysis was central to the push for reform, with its director Steve Gooding commenting that the gap between real motoring costs and the allowable mileage rate had grown significantly and that while “a gap remains” after the 10p uplift, “it will be a relief to see it substantially diminished.”
The increase followed direct pressure from trade union Unison, RAC Foundation research, and representations from MPs including Jim McMahon. The Chancellor confirmed the change in a statement to the House of Commons, citing benefits for “care workers, plumbers and others who need to drive for work” as part of a broader cost of living response.
It is worth noting that the Association of Taxation Technicians (ATT) – which had campaigned for a review – welcomed the change as “long overdue” but noted that the 10p increase after fifteen years still does not fully reflect real motoring cost inflation. Campaigners had sought a rate of 63p; the 55p outcome, while meaningful, falls short of that ambition. The Government has confirmed rates will be reviewed at the next Budget.
What this means in practice: real numbers for North West businesses
For businesses in Manchester and Liverpool, the financial impact will vary depending on how many of your employees drive for work and whether you currently reimburse at, above or below the AMAP rate. Here are some practical illustrations:
- An employee driving 5,000 business miles a year gains an extra £500 tax-free annually — rising from £2,250 to £2,750 in approved reimbursement
- An employee or contractor driving 8,000 business miles stands to receive an extra £800 of tax-free reimbursement per year.
- A self-employed worker driving 6,000 business miles with no employer reimbursement can now claim relief on £3,300 of taxable income – saving £660 at the basic rate or £1,320 at the higher rate
Crucially, the increase is backdated to 6 April 2026. This means higher rates apply to all qualifying business mileage since the start of the current tax year – including April and May – and businesses will need to address the shortfall on claims already processed at 45p. Our payroll and tax teams in Manchester and Liverpool can help you calculate and process this efficiently.
For employers: what Williamson & Croft recommends you do now
1. Update your mileage reimbursement policy
If your business reimburses employees at the HMRC approved rate, your internal travel policy needs updating from 45p to 55p per mile for cars and vans (for the first 10,000 miles per employee, per tax year). HMRC’s Agent Update 143 sets out the practical steps involved.
2. Process the backdated shortfall
This is where many employers will need to act promptly. The ATT confirms that businesses that paid the previous 45p rate since 6 April 2026 can revisit those payments and pay the 10p per mile shortfall at the new 55p rate – without income tax or National Insurance being due on the additional amount.
Where you paid above 45p during April and May – for example where a legacy policy already paid 50p – and deducted tax and NIC on the excess, HMRC has indicated those payrolls may need to be revised to reflect the now-higher approved rate.
Action required: Review all mileage expense claims submitted since 6 April 2026. Calculate the shortfall between what was paid and the new 55p rate. Arrange payment of the difference and process through payroll or expenses. Contact Williamson & Croft on 0161 399 0121 (Manchester) or 0151 303 3112 (Liverpool) if you need assistance.
3. Communicate clearly with your team
Employees who drive for work i.e. field-based staff, care workers, sales teams, and tradespeople, will want to understand what the increase means for them and when to expect any backdated payment. Clear internal communication now will head off confusion and questions, particularly where payroll runs have already been processed at the old rate.
The questions we are already hearing
“Will my employer actually pass on the increase?”
This is the question arising most frequently since the announcement – and the honest answer is that employers are not legally required to reimburse at the AMAP rate. As HMRC and multiple professional bodies confirm, the AMAP rate is a tax-free ceiling – the maximum that can be paid without triggering income tax and NIC – not a statutory minimum. Employers may pay less than the approved rate, depending on their contracts and policies.
However, where an employer reimburses below 55p per mile – or pays nothing at all – employees are entitled to claim Mileage Allowance Relief (MAR) on the difference through HMRC, via self-assessment or form P87.
From an employer’s perspective, employment and payroll advisers are advising businesses to review their policies both for practical and competitive reasons. For employees who drive regularly for work – particularly in sectors such as construction, care and professional services, which are prominent across Greater Manchester and Merseyside – falling significantly below the approved rate is likely to create staff discontent. If you are unsure whether your current policy remains competitive, our advisers at Williamson & Croft can help you benchmark it.
“Is 55p actually enough? Campaigners wanted more.”
A fair challenge. The ATT, the RAC Foundation and others had sought a rate closer to 63p to properly reflect real-world motoring costs. The 55p outcome is a meaningful improvement on fifteen years of stagnation, but the RAC Foundation itself acknowledged that “a gap remains” between the new rate and actual vehicle running costs. The Government has committed to reviewing rates at the next Budget, which leaves open the possibility of further adjustment.
“What about employees who drive more than 10,000 miles?”
The 25p rate for miles above 10,000 per tax year remains unchanged, which is potentially disappointing for high-mileage employees – particularly those in field-based or care-sector roles. The asymmetry of the increase has attracted criticism from professionals working with high-mileage workers.
One important distinction for high-mileage drivers: for National Insurance purposes only, the 55p rate applies to all business miles – the 10,000-mile threshold does not apply for NIC. This provides some additional benefit for high-mileage employees, though the income tax position remains less favourable above the threshold.
“We use electric vehicles. Does this affect us differently?”
No separate AMAP rate has been introduced for employees using their own electric cars. Employees using their own EV for business travel continue to use the same 55p/25p rates as petrol and diesel vehicles which may not fully reflect the lower cost of electric charging per mile.
For company-provided electric vehicles, reimbursement is based on advisory electricity rates, currently 7p per mile for home charging and 15p per mile for public charging. No changes were made to the advisory fuel rates for company EVs as part of this announcement. The absence of a distinct EV AMAP rate is an area we expect to see revisited, particularly as EV adoption continues to rise across the North West.
“Some reports said it was an HMRC decision, is that right?”
Some confusion arose because HMRC’s Agent Update 143 was the mechanism through which the change was communicated to professionals. The AMAP rate is a government policy decision announced by the Chancellor in Parliament which HMRC then reflects in its guidance. The distinction matters because it means future changes will depend on Budget decisions, not HMRC administrative discretion.
For the Self-Employed and Limited Company Directors
For sole traders and self-employed individuals across Manchester and Liverpool, the 55p rate now applies to all qualifying business mileage claimed on your self-assessment return from 6 April 2026. If you have been using 45p in your records for the current tax year, those figures will need to be recalculated from the start of the year.
For limited company directors using their own vehicle for business, your company can reimburse up to 55p per mile tax-free for the first 10,000 miles — with the reimbursement being a fully deductible business expense. As our own Williamson & Croft guidance on management accounts notes, keeping accurate mileage records throughout the year is the foundation of any well-managed expense claim.
If your company accounting period straddles 6 April 2026 – for example, a December or March year-end – you will need to apply the old 45p rate to the 2025/26 portion and 55p to the 2026/27 portion when calculating your mileage deduction. Our team can help you apportion this correctly.
Employer checklist: what to action
- Update your written mileage reimbursement policy to 55p per mile for cars and vans (first 10,000 business miles per employee).
- Calculate the shortfall on all mileage paid at 45p since 6 April 2026 and arrange payment of the difference.
- Review April and May payroll if you paid above 45p and deducted income tax and NIC – those months may need reprocessing.
- Communicate the change to employees – especially those who drive regularly for work – explaining the new rate, the backdating, and what it means for them.
- Inform employees reimbursed below 55p that they may claim Mileage Allowance Relief on the shortfall through HMRC.
- Review your mileage recording process – accurate, contemporaneous mileage logs remain essential and are the first thing HMRC will ask for in any review.
- Consider your position on electric vehicles and whether your current policy adequately reflects the difference in charging costs.
Speak to Williamson & Croft
Whether you are an employer in Manchester or Liverpool needing to update your travel policy and process backdated payroll adjustments, a self-employed worker recalculating your mileage claims, or an employee who wants to understand your Mileage Allowance Relief entitlement our team is here to help.
Williamson & Croft is a full-service firm of chartered accountants and tax advisers with offices at the heart of both cities. We work with businesses across Greater Manchester, Merseyside and the wider North West, across sectors including property, construction, professional services, technology and digital.