Increase in tax-free mileage reimbursements
As part of a government package of measures intended to address rising fuel prices, the main rate for approved mileage allowance payments (AMAPs) has increased to 55p per business mile from 6 April 2026, an increase of 10p and the first such change for 15 years.
These rates may provide relief from income tax where an employee or a self-employed individual makes business journeys in their own vehicle. Similar rules apply for the purposes of NICs.
The main rate applies for cars and vans for the first 10,000 business miles in the tax year for income tax purposes. Above 10,000 business miles, the rate is unchanged at 25p. For NICs purposes, the rate is 55p, irrespective of the level of business mileage. Separate rates apply for motorcycles and bicycles, and there is also a rate for taking a business passenger with you on a qualifying journey. No changes have been announced to these rates, which are 24p, 20p and 5p respectively.
When can AMAPs be used?
The rules are different for employees and the self-employed. Here is a brief summary of the main principles, but the rules are much more detailed than it is possible to show fully in a few short paragraphs.
Employees
The employer may make a payment to the employee to compensate them for the costs of using their own vehicle for business journeys. Payments cannot be made for ordinary commuting, which includes journeys from home to a normal place of work.
The payment is free of income tax and NICs to the extent that it is below or equal to the AMAP amount. Where the payment exceeds the AMAP amount, the excess is liable to income tax and NICs.
The employee may claim a deduction from earnings (except for the passenger payment) where:
– the payment made by the employer is less than the AMAP amount, in which case the deduction is equal to the difference between the payment received and the AMAP amount; or
– no payment is made, in which case the employee may claim a deduction from taxable earnings equal to the AMAP amount.
Self-employed
The self-employed can claim a deduction for the costs of making business journeys in calculating their taxable profits. The options for them are to either:
– claim for the actual vehicle costs incurred on business journeys (e.g. a proportion of fuel, servicing, insurance costs and capital allowances, to reflect the business use proportion of these costs); or
– claim an amount equal to the AMAP rate for their business miles, without claiming other vehicle costs.
Other changes
The government has also announced the following:
– an extension of the 5p per litre cut in fuel duty until the end of 2026;
– a cut in the rate of duty on red diesel from 10.18p to 6.48p per litre, from 15 June until the end of 2026; and
– the introduction of a 12-month holiday from vehicle excise duty for most heavy goods vehicles.
Be careful!
The definition of what constitutes qualifying business travel is different for employees (including directors) and the self-employed. It is a notoriously difficult area and mistakes can be very costly. For example, you might have thought that your employee was entitled to tax-free reimbursements of 55p/mile, when in fact they were not, as they had not made a qualifying journey. This may mean a lot of extra income tax and NICs being due, plus interest and penalties.
If you need help in understanding when you can reimburse or claim tax-free AMAP rates, please get in touch. We will guide you through this compliance minefield. In particular, please make sure you keep accurate and timely records of all business journeys undertaken. You will need these if HMRC enquire into the payments.
