HMRC Update May 2026: Key Payroll and Business Mileage Changes SMEs Need to Implement
HMRC has confirmed an important increase to the Approved Mileage Allowance Payment rate for cars and vans. From 6 April 2026, the rate for the first 10,000 business miles in the tax year is 55p per mile, up from 45p. The rate above 10,000 miles remains 25p per mile.
This is the first increase to the main car and van AMAP rate since 2011, and it affects employers, employees and self-employed people using the simplified mileage method. If your business reimburses staff for using their own vehicles, or if you claim mileage as a sole trader, you should review your records and systems now.
The change applies from the start of the 2026/27 tax year, so April and May reimbursements may need checking where they were paid at the old rate.
The mileage rate change explained
Approved Mileage Allowance Payments allow employers to reimburse employees tax-free for business journeys made in their own car or van. They also form the basis for Mileage Allowance Relief where an employer pays less than the approved rate.
For sole traders using simplified expenses, the same mileage rates are used to calculate the business mileage deduction on the Self Assessment return.
The 10p per mile increase can add up quickly. An employee driving 8,000 business miles in their own car could receive up to £800 more tax-free mileage reimbursement than under the previous rate. A sole trader doing 10,000 qualifying business miles could claim a £1,000 higher deduction than under the old 45p rate.
Need Expert Accounting Advice?
If you are unsure about tax, bookkeeping, payroll, property accounts or business finances, speak to the team at FHP Accounting for clear, practical guidance.
The change was confirmed in HMRC Agent Update 143. For wider context on tax changes affecting businesses, our UK Spring Budget 2026 summary covers the bigger picture.
The 2026/27 approved mileage rates
| Vehicle type | First 10,000 business miles | Above 10,000 business miles |
|---|---|---|
| Cars and vans | 55p per mile | 25p per mile |
| Motorcycles | 24p per mile | 24p per mile |
| Bicycles | 20p per mile | 20p per mile |
Passenger payments remain 5p per mile per qualifying passenger.
There are a few important distinctions. Advisory Fuel Rates for company car drivers are separate and are not the same as AMAP rates. Electric vehicles owned by employees use the same car and van AMAP rates. There is no separate electric car AMAP rate. Ordinary commuting between home and a permanent workplace is still not business mileage.
What to do if you already reimbursed at 45p
Because the new rate applies from 6 April 2026, mileage paid at 45p in April or May should be reviewed.
Employers are not forced to pay the full approved rate. You can pay less if your policy says so. However, if you want employees to receive the benefit of the new rate, you can top up the extra 10p per mile for qualifying business journeys within the first 10,000 miles.
Practical steps:
- Pull a report of mileage claims paid since 6 April 2026
- Check how many qualifying business miles each employee has claimed
- Calculate any top-up due against the 55p rate
- Update your payroll, expenses and mileage policy
- Tell employees how future claims should be submitted
- Make sure mileage logs include date, journey, purpose and miles
Good systems make this easier. Our automations in Xero post explains how recurring expense processes can be streamlined, while our receipt capture workflow guide helps with digital evidence. As specialists in outsourcing xero bookkeeping, we see fewer payroll issues where expenses and bookkeeping are managed in the same cloud system.
Wider payroll changes for 2026/27
The mileage change sits alongside several payroll points SMEs should already have implemented for 2026/27.
Employer National Insurance remains at 15%, with the secondary threshold at £5,000 per year. The Lower Earnings Limit is £6,708 per year, or £559 per month. Employment Allowance remains £10,500 for eligible employers.
National Minimum Wage and National Living Wage rates also increased from 1 April 2026, so payroll systems should already reflect the new hourly rates.
From 6 April 2026, employees can no longer claim working from home tax relief for additional household costs through HMRC. However, separate workplace benefit changes mean employer reimbursements for qualifying homeworking equipment, eye tests and flu vaccinations can be exempt from Income Tax and National Insurance where the rules are met.
Our why accurate bookkeeping is crucial article explains why these payroll and expense details need recording properly, not tidying up later. For setup, read our Xero bookkeeping basics guide and our month-end in Xero walkthrough.
Employment Allowance: check your claim
Employment Allowance can reduce your employer Class 1 National Insurance bill by up to £10,500, but it is not automatic. Eligible employers must claim through payroll.
You usually cannot claim if your company has only 1 director and that director is the only employee liable for secondary Class 1 National Insurance. Other exclusions can apply, so check eligibility before relying on the allowance.
For growing SMEs, this allowance can make a real difference to cash flow. Our management accounts that directors use post explains how payroll costs should feed into monthly reporting, while our 5 quick Xero tips guide includes simple ways to keep coding consistent.
Keeping mileage and payroll records HMRC-ready
HMRC can ask for evidence supporting mileage claims. Every claim should show the date, start and end points, reason for the journey and number of business miles. A contemporaneous log is far stronger than a year-end reconstruction.
Payroll records should also show which mileage rate was used, when policy updates were made and how any top-up payments were calculated.
Our Xero bank reconciliation guide and Xero controls and user permissions article cover the checks that keep records clean. If you want the full process handled externally, our finance outsourcing services team covers bookkeeping, payroll and compliance together. Our benefits of outsourcing your accountant post explains the wider case.
Mileage also affects year-end accounts, expenses and director records, so it should be considered alongside allowable expenses for limited companies.
What sole traders need to do
For self-employed people using simplified mileage, the new 55p rate applies to qualifying business miles from 6 April 2026. The key task is keeping an accurate mileage log throughout the year.
If April and May records are rough, reconstruct them now from diary entries, invoices and client visits rather than waiting until tax return season. Our bookkeeping health check can flag gaps before they cause problems.
As an accounting Nottingham firm, we help sole traders and SMEs keep mileage, expenses and income records ready for Self Assessment. Our start up accountancy and bookkeeping Nottingham services are useful for businesses getting organised properly for the first time.
Landlords who drive for property management should also keep business mileage evidence. Our filing returns for landlords guide and accountants property team can help with the wider tax position.
Frequently asked questions
When did the 55p mileage rate start?
The 55p rate applies from 6 April 2026 for the first 10,000 qualifying business miles in cars and vans.
Do I have to top up staff already paid at 45p?
Not necessarily. Employers are not legally required to pay the full AMAP rate. If you choose to top up to 55p, review claims from 6 April 2026 and calculate the difference.
Does the new rate apply to company cars?
No. AMAP rates apply where employees use their own vehicle. Company car drivers use Advisory Fuel Rates, which are a separate system.
Does the rate apply to electric cars?
Yes, where the employee uses their own electric car for business journeys. Electric cars use the same AMAP rate as other cars.
Can employees still claim working from home tax relief?
From 2026/27, employees cannot claim working from home tax relief for additional household costs through HMRC. Employers can still reimburse certain qualifying costs tax-free where the rules are met.
How do I update mileage in Xero?
Update your mileage policy, expense categories and claim process. If you are moving systems, our from spreadsheets to Xero guide is a good starting point.
Ready to get your payroll and expenses fully up to date?
The new mileage rate is good news for employees and sole traders, but it also creates admin work for SMEs that paid April and May claims at the old rate.
Our team helps SMEs across Nottingham and nationwide keep payroll, expenses and bookkeeping accurate. Call 0115 648 8686 or get in touch through our website to book a free, no-obligation conversation about your payroll and expense arrangements.
I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.
Need Expert Accounting Advice?
If you are unsure about tax, bookkeeping, payroll, property accounts or business finances, speak to the team at FHP Accounting for clear, practical guidance.
