After more than 15 years without a change, the government’s approved mileage rate for cars and vans has finally increased.
The Chancellor announced that the rate for the first 10,000 business miles will rise from 45p to 55p per mile, with the change applying retrospectively from 6th April 2026. This is welcome news for anyone who uses their own vehicle for business journeys and has been feeling the impact of rising fuel, insurance and maintenance costs.
What has changed?
For the 2026/27 tax year, the approved mileage rates are now:
| Vehicle Type | First 10,000 Business Miles | Over 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 |
Only the rate for cars and vans has changed. The rates for motorcycles, bicycles and mileage above 10,000 miles remain unchanged.
The increase has been backdated to 6th April 2026, meaning businesses should review any mileage claims already submitted during the current tax year.
Who can claim?
The increase applies to:
- Employees using their own car or van for business journeys
- Company directors using their personal vehicle for business travel
- Sole traders using their own vehicle for work
- Business partners travelling for business purposes
It does not apply to normal commuting between home and a permanent workplace. To qualify, the journey must be wholly and exclusively for business purposes, such as visiting clients, attending meetings or travelling between work locations.
How much difference does it make?
The increase is worth an extra 10p per mile on the first 10,000 business miles travelled during the tax year.
For example:
| Annual Business Mileage | Old Rate | New Rate | Additional Claim |
| 2,000 miles | £900 | £1,100 | £200 |
| 5,000 miles | £2,250 | £2,750 | £500 |
| 10,000 miles | £4,500 | £5,500 | £1,000 |
For many contractors, consultants and small business owners, this could significantly increase the amount that can be claimed as a business expense.
Why has the rate increased?
The approved mileage allowance had remained unchanged since 2011 despite substantial increases in fuel, servicing, insurance and vehicle running costs.
This is the first increase to the headline mileage rate in over 15 years and reflects the reality that the cost of operating a vehicle has risen considerably during that period. For many business owners, the previous 45p rate had become increasingly outdated.
Limited company directors – what should you do?
If you run a limited company and use your personal vehicle for business journeys, it’s worth checking any mileage claims you’ve already submitted since 6th April 2026.
Where appropriate, these may now qualify for the higher 55p rate.
Remember that when you use the approved mileage method, the mileage allowance is intended to cover all vehicle running costs, including fuel, servicing, repairs, insurance and depreciation. Those costs cannot normally be claimed separately through the company.
FreeAgent users – important information
FreeAgent has already updated its mileage calculations to reflect the new rates.
For most users, no action is required. Mileage claims created from 6th April 2026 onwards will automatically use the new 55p rate, including existing claims that:
- Have not been re-billed to a customer, and
- Are not within a locked accounting period
If you’ve already re-billed mileage to a customer
FreeAgent will not automatically amend mileage claims that have already been re-billed on an invoice.
In this situation, you have three options:
- Leave everything as it is.
- Increase the mileage claim for tax purposes but keep the customer invoice unchanged.
- Increase both the mileage claim and the invoice value.
If you choose option two, FreeAgent allows you to update the mileage claim to the new 55p rate while keeping the customer invoice at the original value. This maximises the tax relief available without changing what you have charged your client.
If the mileage is in a locked accounting period
If your accounts have already been finalised and the period is locked, FreeAgent will not automatically update the mileage claims.
In this situation you can:
- Leave the figures unchanged.
- Post a journal entry for the additional amount that could have been claimed.
- Unlock the period, amend the mileage claims and refile any affected accounts or tax returns if necessary.
For accountants and bookkeepers using FreeAgent, the suggested journal entry is:
Debit: 249 Mileage
Credit: 905 Expense Account (for the relevant user)
This records the additional mileage claim in the current open accounting period without reopening previously filed periods.
Our thoughts
This change is long overdue and will be welcomed by many contractors, freelancers and small business owners who regularly travel for work.
While a 10p increase may not sound significant at first glance, it can add up quickly over the course of a year. Someone travelling 10,000 business miles will now be able to claim an additional £1,000 compared to the previous rate.
If you’ve already submitted mileage claims since 6th April 2026, now is a good time to review them and ensure you’re receiving the full relief available.
If you’re a PaperRocket client and would like us to review how this affects your company accounts, mileage claims or FreeAgent records, feel free to get in touch.
PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners.
We specialise in providing friendly, non-accounting jargon, services for contractors, freelancers, sole traders, and landlords across the UK.
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