‘Welcome’ increase in HMRC mileage rates for contractors using their own cars for work

The HMRC-approved mileage rate for cars and vans has been increased to 55p from 45p for the first 10,000 miles.

Chancellor Rachel Reeves announced the 10 pence increase to the tax-free ‘AMAP’ rate on May 21st 2026, in a speech to the House of Commons.

The increase will come as a surprise to contractors because a review of the Approved Mileage Allowance Payment (AMAP) rate had been tabled, but was only due “ahead of a future Budget.”

Is the mileage rate changing for 2026?

Yet it represents a welcome increase, as despite being just the “modest uplift” that ContractorUK readers were told last week to plan for, the new AMAP rate of 55p is backdated to have effect from 2026/27.

Reeves didn’t explain her retrospective tax decision to the Commons.

But the 10p increase in the tax-free reimbursement for people who drive their own vehicle for work was unveiled as part of a new “Cost of Living” support package from the government.

What did Reeves say about the mileage rate increase to 55p?

The chancellor said: “Having heard from…[Jim MacMahon MP] and the trade union Unison, I can today announce a 10p per mile increase in tax free mileage rates, backdated to April 2026; benefiting those who need to drive for work”.

The bringing forward of the AMAP increase (rather than leaving it until nearer Autumn Budget 2026) will pacify tax body the ATT, which had told Reeves that her vow to review “doesn’t go far enough.”

A higher AMAP rate should also help contractors reeling from the effects of a shortage in freelance-friendly government policies.

How much is the new 55p-a-mile rate worth to a contractor?

In fact, the new 55p-a-mile rate means a contractor driving 5,000 business miles a year will be reimbursed an extra £500 a year tax-free, SG Accounting’s Dan Mepham totted up for ContractorUK.

Therefore, for contractors and the self-employed who use their own car/van for work, the mileage rate change to 55p will “make a meaningful difference,” calculates DNS Accountants’ Sumit Agarwal.

Chartered accountant Helen Christopher, of Beansprout Consultancy, says the 10p increase does indeed add up to “good news, even if it’s long overdue” and even if it’s only per tax year (not per journey).

Is it still 25p a mile over 10,000 miles?

The chancellor left the 25p AMAP rate — similarly set 15 years ago and claimable from mile 10,001 and over — untouched.

So, while the new 55p per mile rate represents “good news for [limited company] directors… for the first 10,000 miles,” it is the “same” news for them afterwards, wrote Hasitha Liyanarachchi, of TaxAssist.

Alison Smith, a director at Brook Financial, is among those questioning “the logic behind not increasing the rate for over 10,000 miles,” as HMRC confirmed in an update to “Travel — mileage and fuel rates and allowances.”

Has HMRC changed the mileage rate?

Elsewhere online, some financial experts moved to point out that despite the new AMAP rates for 2026/27 appearing on a HMRC webpage, it wasn’t HMRC’s decision.

HMRC using its latest Agent update (Number 143) to outline the approved mileage rate increase may be behind some of the confusion.

Alongside confirming that a 5p cut to fuel duty will be extended until December 31st 2026, HMRC said in the update:

“The government has announced a range of support for businesses and individuals.”  

When was the approved mileage rate set at 45p?

The 10p increase in the AMAP rate to 55p represents the first increase in 15 years (since 2011), and it was set at 40p for the preceding nine years (2002).

The new 55p rate only applies for the first 10,000 business miles clocked up by vehicles  — not motorbikes or bicycles.

There’s also no change in the approved mileage rate for carrying a passenger.

What about contractor mileage rate claims with HMRC?

And these aren’t the only HMRC quirks that contractors are being advised not to overlook.

Despite acknowledging that greater mileage tax relief is a “welcome step in the right direction,” SG Accounting’s managing director Dan Mepham warned in a statement to ContractorUK:

“It’s good to see HMRC increasing the approved mileage allowance by 10p [because] fuel, insurance, servicing and vehicle costs have all gone up significantly over recent years.

“[While this will feel] like a fairer reflection of the real cost of using your own car for work, it won’t undo all the tax hits contractors and small businesses have had to face over the last few years. [Plus], don’t forget those temporary workplace rules to ensure you and your claims are staying on the right side of HMRC.”

Who does the new 55p mileage allowance affect?

As well as affecting the self-employed who claim tax relief via their tax returns, Affinia employment tax director John Weston says other parties impacted by the new 55p mileage rate include:

• employers considering the rate at which they want to reimburse employees tax-free for qualifying business journeys in their own cars, and,
• employees wanting to claim tax relief from HMRC, where employees aren’t reimbursed the full amount by their employers.

“[This is only] a 10p rise from the previous rate,” reflects DNS Accountants’ managing director Sumit Agarwal.  

“But small policy changes often have a bigger impact than they first appear. So it’s worth checking if this affects you, your employees, or your payroll processes.”

Will the chancellor now tweak other long-frozen tax rates and allowances?

The small increase in the main HMRC—approved mileage rate has prompted some accounting advisers to hope (for their clients) that further tweaks could follow.

So even though Reeves made clear that the 10p AMAP rate rise is the government’s response to events in the Middle East and their impact on fuel prices, accountancy firm adviser Nick Wright has got his eye on inheritance tax.

“[Is there now, chancellor,] any hope of increasing the IHT nil rate band, next?” he posted.

“It's only been [frozen for] 17 years.”

Anthony Campbell, an ACCA-qualified accountant, is also hopeful but also sarcastic.

What’s the current, HMRC-approved, flat rate for use of home?

Campbell says for her next move, the chancellor will “probably put [up] use of home” to £6.05pence per week  — from the current, HMRC-approved, flat rate of £6.00.

A director at Vaughans Accountancy, Katie Bladen, sounds sympathetic to the teasing about the size of the chancellor’s change.

“Hallelujah!” rejoiced Bladen after the mileage rate was increased by 10 pence to 55p a mile. “It is something… [but it is] still peanuts, really.”