The Chancellor has announced an increase to the tax-free business mileage rates that can be paid to employees using their own cars for work. The increase is worth 10p per mile and has been backdated to 6 April 2026.
For employers, sole traders, partnerships and some landlords, this is a useful reminder to check how business mileage is being recorded, reimbursed and claimed.
What has changed?
The 10p per mile increase only applies to the first 10,000 business miles driven in each tax year.
This means the approved tax-free reimbursement rates for employees using their own vehicles for business mileage are now:
| Vehicle | First 10,000 business miles each tax year | Subsequent business miles each tax year |
| Cars and vans | 55p | 25p |
| Motorcycles | 24p | 24p |
| Bicycles | 20p | 20p |
The change applies from 6 April 2026, so employers may need to consider whether any mileage payments made since then should be reviewed.
What can employers reimburse tax-free?
Where an employee uses their own car or van for business journeys, the employer can reimburse them up to 55p per mile for the first 10,000 business miles in the tax year.
After that, the rate for cars and vans falls to 25p per mile.
For car and van trips, employers can also pay an additional 5p per mile for each passenger carried. This means an employee carrying three passengers could receive up to 70p per mile in total.
E-bike riders should receive the bicycle rate if they use an electrically assisted pedal cycle. Any other type of electric bike should be treated under the motorcycle rate.
How does the 10,000-mile limit work?
The 10,000-mile limit applies across all cars used by the employee during the tax year. It does not apply separately to each car.
For example, an employee might drive:
- 4,000 business miles in one car during the first three months of 2026/27
- 9,000 business miles in another car during the remaining nine months
In that case, the maximum tax-free reimbursement would be:
- 10,000 miles at 55p
- 3,000 miles at 25p
That gives a total of £6,250.
This is a useful point for employers to watch, especially where staff use more than one vehicle or where mileage claims are processed across different parts of the business.
What happens if the employer pays more than the approved rate?
Any reimbursement above the approved business mileage rates for the tax year as a whole is treated as earnings.
That means the excess is subject to tax.
Employers should therefore make sure mileage policies, payroll processes and expense systems are updated to reflect the new rates.
What about National Insurance?
The National Insurance position is slightly different.
For National Insurance contributions, the NIC-free rates are similar. However, for cars and vans, 55p per mile can be paid for every business mile driven. There is no 10,000-mile cut-off for NIC purposes.
This creates a difference between the tax and NIC treatment, so it is worth checking the detail rather than assuming both rules work in exactly the same way.
Can employees claim tax relief if they are paid less?
Yes. Employees who are not reimbursed at the maximum mileage rate can claim tax relief on the difference between what they were paid and the approved rate.
For example, if an employer does not reimburse mileage at all, the employee can claim tax relief using the full 55p and 25p per mile car rates.
This can be particularly relevant where employees regularly use their own vehicles for business journeys but receive either no mileage payment or a lower rate.
Can sole traders and partnerships use these rates?
Yes. Sole traders and partnerships can use the mileage rates for cars, vans and motorcycles when calculating vehicle expenses to deduct from trading profits.
Unincorporated landlords can also use the rates when calculating property income.
However, in both cases, there is no additional allowance for passengers carried.
What should businesses do now?
If your business reimburses staff for mileage, now is a sensible time to review your approach.
You may want to check:
- whether your expenses policy reflects the updated business mileage rates
- whether payments made from 6 April 2026 need to be adjusted
- whether payroll treatment is correct where payments exceed the approved rates
- whether staff understand what records they need to keep
- whether sole trader or partnership mileage claims are being calculated correctly
For many Scottish SMEs, this will not require a major change. However, small differences in mileage rates can add up over the course of a tax year, especially where employees regularly travel for meetings, site visits or client work.
Clear records and up-to-date expense processes can help avoid confusion later.
If you are unsure how the updated mileage rates apply to your business, your employees or your own self-employed mileage claims, get in touch for advice.
HMRC guidance on business travel mileage for employees using their own vehicles is available online.