From 6 April 2027 the tax-free mileage rate for business miles above 10,000 a year rises from 25p to 35p, while the 55p rate for the first 10,000 miles stays. A self-employed higher-rate driver doing 25,000 business miles gets a £1,500 bigger deduction, worth £630 a year in tax and Class 4 National Insurance. Drive fewer than 10,000 business miles and April 2027 changes nothing for you. The 35p rate is announced, not yet law.
Below: what the Budget actually changed, which parts are already law, what the extra 10p is worth at 8,000, 15,000 and 25,000 business miles, how to claim if your employer pays less, and the extended fuel duty cut.
What the Budget changed — and what it did not
Two separate decisions are involved. On 21 May 2026 the government raised the approved rate for the first 10,000 business miles in a car or van from 45p to 55p, backdated to 6 April 2026. HMRC’s tax information and impact note says it was part of a package to support motorists during elevated fuel prices, and that the rates beyond 2026/27 were under review, with the outcome to be set out at Budget 2026.
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That 55p is already law. Section 2 of the Taxation (Energy and Vehicles) Act 2026, which received Royal Assent on 15 July 2026, replaces “45p” with “55p” for employees’ approved mileage allowance payments and for the self-employed flat rate, from 2026/27 onwards. The Budget’s contribution is a commitment to keep it: the Treasury’s pre-Budget announcement says the Chancellor is “locking in the 55p per mile rate for the first 10,000 business miles”.
The second decision is the new one. Budget 2026’s overview of tax legislation and rates (section 2.7) says the government will raise the approved mileage allowance payments and the self-employed simplified mileage rates for business mileage above 10,000 miles “from 25 pence to 35 pence per mile”, taking effect from 6 April 2027. That part is announced in the Budget, not yet legislated: the same paragraph says the government will introduce legislation by statutory instrument later in the year.
The Treasury expects around three million employees and self-employed people to benefit. The Budget 2026 policy costings put the cost of the two mileage changes together at £30 million in 2026/27, rising to £200 million in 2027/28 and £245 million by 2031/32.
Motorcycles, bicycles and passengers: no change announced
The Budget paragraph covers cars and vans only. The current HMRC approved mileage rates are 24p a mile for motorcycles and 20p for bicycles, with no 10,000-mile split, and none of the Budget documents we read changes them or the 5p-per-passenger rate.
Who actually gains from 35p
Only people who drive more than 10,000 business miles in a tax year. The gain is the miles above 10,000, times 10p, times your tax rate — a bigger tax-free amount or deduction, not a cash payment.
It depends how you are paid:
- Employees whose employer pays at least the new rate. More of what you are paid comes to you tax-free. Your employer does not have to raise its rate — the approved rate is an upper limit for tax-free payments, not a minimum.
- Employees whose employer pays less, or nothing. You claim Mileage Allowance Relief on the gap, and that gap gets 10p a mile bigger above 10,000 miles.
- Self-employed people using the flat rate. The deduction from your profits rises, which cuts both Income Tax and Class 4 National Insurance.
- Employees who pay no Income Tax. Nothing to claim. HMRC’s employment expenses guidance says you must have paid tax in the year you are claiming for.
What the extra 10p is worth at 8,000, 15,000 and 25,000 miles
The table compares the total tax-free amount under the 2026/27 rates (55p, then 25p) with the 2027/28 rates (55p, then 35p), and what the extra deduction saves. Employee figures use the 20 and 40 per cent Income Tax rates that apply in England, Wales and Northern Ireland. Self-employed figures add Class 4 National Insurance at the 2026/27 rates of 6 per cent on profits between £12,570 and £50,270 and 2 per cent above — so 26 per cent in total at basic rate and 42 per cent at higher rate. We have used 2026/27 Class 4 rates because 2027/28 rates were not in the documents we checked.
| Business miles a year | Tax-free amount 2026/27 (55p/25p) | 2027/28 (55p/35p) | Extra deduction | Employee, basic rate (20%) | Employee, higher rate (40%) | Self-employed, basic rate (26%) | Self-employed, higher rate (42%) |
|---|---|---|---|---|---|---|---|
| 8,000 | £4,400 | £4,400 | £0 | £0 | £0 | £0 | £0 |
| 15,000 | £6,750 | £7,250 | £500 | £100 | £200 | £130 | £210 |
| 25,000 | £9,250 | £10,750 | £1,500 | £300 | £600 | £390 | £630 |
At 15,000 miles: 10,000 at 55p is £5,500, and 5,000 at 35p is £1,750, giving £7,250 — £500 more than the £6,750 under today’s 25p. At 25,000 miles: £5,500 plus 15,000 at 35p (£5,250) is £10,750, against £9,250 now. A basic-rate employee at 25,000 miles saves £1,500 × 20% = £300. A self-employed higher-rate driver saves £1,500 × 42% = £630.
Where the government’s £120 and £300 come from
The Treasury says the changes give “£120 a year in additional tax savings for a worker doing 6,000 business miles” and up to £300 for someone driving 15,000. The Treasury does not say what they are measured against, but they only add up against the old 45p rate, not today’s 55p. At 6,000 miles the gain is 6,000 × 10p = £600 of extra deduction, × 20% = £120 — all of it from the May 2026 rise you already have this tax year. At 15,000 miles it is £1,000 from the first 10,000 miles plus £500 from the new 35p, £1,500 at 20% = £300. On that reading, only £100 of the £300 is new from April 2027.
Scotland
The mileage rates are UK-wide. What differs is the value of the relief, because Scottish taxpayers pay Scottish Income Tax rates on earnings and trading profits: 19, 20, 21, 42, 45 and 48 per cent for 2026/27. At those rates, a Scottish employee on 21 per cent driving 15,000 business miles would gain £500 × 21% = £105 in 2027/28, and one on 42 per cent £210. Holyrood sets the 2027/28 rates, so these may change. Class 4 National Insurance is the same across the UK.
Employees: when your employer pays less than the approved rate
GOV.UK’s rules for employers say anything above the approved amount is taxable — reported on a P11D or put through payroll — while anything below it needs no reporting, and the employee can get Mileage Allowance Relief on the unused balance.
Take an employee driving 15,000 business miles in 2027/28 whose employer pays 30p a mile. They receive £4,500. The approved amount will be £7,250, so they can claim relief on £2,750. At basic rate that is £550 off their tax bill; at higher rate, £1,100. Under today’s 25p the same claim would be on £2,250 — £450 or £900.
GOV.UK’s page on tax relief for vehicles you use for work says you can claim for the current tax year and the previous four, and that you must send HMRC copies of your mileage logs. You claim online or on by post (form P87); if you file a Self Assessment return, you must claim through the return instead. The relief reduces Income Tax only, and you cannot claim separately for fuel, tax, MOTs or repairs on top — the mileage rate is meant to cover them.
It works the other way too: anything above the approved amount for the year is taxed. A driver paid a flat 45p on 25,000 business miles gets £11,250. Against today’s £9,250 approved amount, £2,000 is taxable; against £10,750 from 2027/28, only £500, if the 35p is legislated as announced.
National Insurance is different. GOV.UK’s National Insurance rules for employers already treat up to 55p a mile as free of Class 1 NI on every business mile, with no 10,000-mile cut-off. The Budget overview says the 35p will also apply to the NI disregard but not what that changes, so do not count on an NI saving until the statutory instrument is published.
Driving for work and not sure where the money goes?
Put your mileage payments, fuel and the tax you set aside into one monthly budget, and see what the extra relief is really worth to you.
Try the budget planner →Self-employed: the flat-rate mileage deduction
Sole traders and partnerships with no company partners can use simplified expenses; limited companies cannot. For vehicles, the flat rate replaces the actual costs of buying and running the vehicle — insurance, repairs, servicing, fuel. You can still claim parking and other travel such as train fares on top.
Three rules decide whether the 35p reaches you:
- It covers cars and goods vehicles — GOV.UK gives vans as the example. Motorcycles stay at 24p.
- No capital allowances on the same vehicle. GOV.UK says you cannot claim simplified expenses for a vehicle you have already claimed capital allowances for. If you claim actual costs and capital allowances, the 35p does not change your bill.
- Once you choose the flat rate for a vehicle, you stay on it for as long as you use that vehicle in the business.
The 35p takes effect from 6 April 2027. If your accounting year ends on 31 March or 5 April, it first shows up on your 2027/28 return, due by 31 January 2029. With another year end, profits are split between tax years, and the Budget documents do not yet say how 35p applies to a period straddling 6 April 2027. See our guide to Self Assessment deadlines for how the filing calendar works.
Delivery and gig drivers
This is where the 35p matters most: self-employed couriers and app drivers whose business mileage runs well past 10,000. At 25,000 miles the deduction rises by £1,500, worth £390 a year at basic rate including Class 4. If delivering is a second income on top of a job, our guide to side hustle tax rules covers when you need to register.
If you deliver by moped or e-bike the Budget did nothing for you.
Keep a proper log
For employees, GOV.UK lists the dates and mileage of each work journey, the reason for every journey, and the start and end postcodes. The self-employed should keep similar records to back up the deduction if HMRC asks. If you fall within Making Tax Digital for Income Tax, keep the log digitally as you go.
Fuel duty: the 5p cut runs to 30 June 2027
The Budget also extended the temporary 5p-a-litre cut in fuel duty, first introduced in March 2022. HMRC’s amended fuel duty rates published in May 2026 set the main rate for petrol and diesel at 52.95p a litre until 31 December 2026, then planned rises to 55.95p on 1 January 2027 and 57.95p on 1 March 2027. Budget 2026 scraps those steps: the cut now runs from 1 January 2027 until 30 June 2027.
On 1 July 2027, the Budget overview says rates return to the levels that applied before the cut — 57.95p — and the government will legislate to increase them in line with RPI inflation from that date. The documents we read give no RPI-uprated figure. This is announced, not yet legislated. The costings put the extension and the deferred increase together at £575 million in 2026/27 and £780 million in 2027/28.
The mileage rate does not move with pump prices, so in a thirsty vehicle 55p and 35p may not cover your real costs.
What to do now
- Check your business mileage. Under 10,000 a year, April 2027 changes nothing.
- Employees paid below the approved rate: claim Mileage Allowance Relief for 2026/27 and any of the previous four tax years you missed.
- Self-employed: confirm you are on the flat rate for the vehicle and have not claimed capital allowances on it.
- Keep a mileage log from 6 April 2027 that shows clearly when you pass 10,000 business miles.
- Wait for the statutory instrument before relying on 35p in a contract or pay policy.
Frequently asked questions
What are the HMRC mileage rates from April 2027?
For cars and vans, 55p a mile for the first 10,000 business miles in a tax year and 35p a mile after that, from 6 April 2027. The 35p replaces 25p and was announced in Budget 2026, with legislation by statutory instrument to follow. Motorcycles stay at 24p and bicycles at 20p, as no change to them has been announced.
Is the 55p mileage rate permanent?
It is law from 2026/27 onwards. The Taxation (Energy and Vehicles) Act 2026, given Royal Assent on 15 July 2026, raised the rate from 45p to 55p from the 2026/27 tax year. The Treasury said before the Budget that it is locking in 55p for the first 10,000 business miles. A later Finance Act could still change it.
I drive under 10,000 business miles a year. Do I gain anything?
Not from the April 2027 change. The 35p only applies to business miles above 10,000 in a tax year. You already benefit from the rise from 45p to 55p, which applies from 6 April 2026. The Treasury’s figure of £120 for a 6,000-mile driver only adds up as that earlier rise, not a new gain.
My employer pays less than the approved rate. What can I claim?
You can claim Mileage Allowance Relief on the difference between what you were paid and the approved amount. Claim online or by post, or through your Self Assessment return if you file one. You need mileage logs and must have paid tax that year. You can claim for the current tax year and the previous four.
Can self-employed drivers use the 35p rate?
Yes, if they use simplified expenses for the vehicle. The Budget raises the self-employed simplified mileage rate above 10,000 miles to 35p from 6 April 2027. You cannot use the flat rate for a vehicle you have claimed capital allowances on, and limited companies cannot use simplified expenses.
What is happening to fuel duty?
The temporary 5p-a-litre cut, which keeps the main rate for petrol and diesel at 52.95p, is extended to 30 June 2027 instead of being phased out from January. On 1 July 2027 rates return to their pre-cut level of 57.95p and the government plans to raise them in line with RPI inflation from that date. This is announced, not yet legislated.
Last reviewed: November 2026. Approved mileage rates and the self-employed flat rates are UK-wide; the value of the relief depends on your Income Tax rate, which differs for Scottish taxpayers, while Wales and Northern Ireland use the same rates as England. The 55p rate for the first 10,000 miles is law from 2026/27; the 35p rate above 10,000 miles from 6 April 2027 and the fuel duty extension to 30 June 2027 were announced in Budget 2026 on 28 October 2026 and still need legislation. Worked examples are our own calculations on stated assumptions, using 2026/27 Income Tax and Class 4 rates. This article is general information, not personal financial advice. Budget measures can change before they become law — check GOV.UK or HMRC for your own position, or get free help from MoneyHelper or Citizens Advice.
