Mileage Allowance Increases 2026
- Brian Pusser
- 3 days ago
- 5 min read
Published 20 June 2026
Mileage Allowance Increases 2026
HMRC's mileage allowance rate increases to 55p for the first time since 2011. Learn how the new mileage allowance affects your construction business from 6 April 2026.
Mileage Allowance Finally Increases
If you run a construction business in Kent, Medway, Surrey, East Sussex, or Essex, here's important news: the mileage allowance rate has changed for the first time since 2011.
From 6 April 2026, employees can be reimbursed 55p per mile (up from 45p) for the first 10,000 business miles when using their own vehicles.
This 10p increase represents a 22% uplift - the most significant change to business mileage rates in over a decade.
For construction businesses where site visits, supplier runs, and client meetings are daily occurrences, this change will have real financial implications.
New Mileage Allowance Rates
What's changed:
First 10,000 miles: Increased from 45p to 55p per mile
Miles over 10,000: Remains at 25p per mile (unchanged)
Motorcycles: No change (24p per mile)
Bicycles: No change (20p per mile)
Passengers: No change (5p per mile)
When it applies:
Effective date: 6 April 2026 (retrospectively announced in May)
All business journeys from this date qualify for the higher rate
The government acknowledged that rising fuel costs, insurance premiums, and vehicle maintenance expenses - partly driven by global events - have significantly increased the real cost of business motoring.
While trade unions campaigned for this increase, the government has committed to reviewing the remaining rates in a future Budget.
Mileage Allowance Impact Explained
For employers with employees using their own vehicles:
If your site managers, quantity surveyors, or tradespeople use their personal vehicles for work, you have three options:
Update your policy immediately - Pay the new 55p rate from 6 April 2026
Stick with 45p - Your employees can claim tax relief on the 10p difference
Backdate payments - You can top up April and May mileage claims, but you're not obligated to
Real-world impact:
An employee travelling 8,000 business miles annually will see:
Old rate (45p): £3,600 reimbursement
New rate (55p): £4,400 reimbursement
Difference: £800 extra per year
For a construction business with five employees regularly travelling to sites, that's potentially £4,000 additional annual expense - but it's also a Corporation Tax deductible cost.
Self-Employed Mileage Allowance Rules
If you're a sole trader or partnership in the construction industry using simplified expenses, the new mileage allowance rate applies to your business travel from 6 April 2026.
What you can claim:
55p per mile for the first 10,000 business miles
25p per mile thereafter
What counts as business mileage:
Travel from your office/yard to client sites
Supplier visits for materials
Site-to-site travel between jobs
Trips to meet prospective clients or attend networking events
What doesn't count:
Your commute from home to your regular workplace
Personal journeys
Pro tip: Keep accurate mileage records. A simple spreadsheet or mileage tracking app documenting date, destination, purpose, and miles travelled will protect your tax position if HMRC enquires.
Looking for more ways to reduce your tax bill? Check out our Tax Savings Checklist which highlights five commonly overlooked deductions for construction businesses.
Best practice: Implement a monthly mileage claim form requiring employees to document each journey with date, destination, business purpose, and miles.
For limited company directors wondering about other tax-efficient benefits, our article on tax-free staff events explains how you can fund a £150 per person annual event with no tax liability.
Implementing Mileage Allowance Changes
Action steps for construction business owners:
Step 1: Update Your Travel Policy
Review and revise your employee handbook or expenses policy to reflect the 55p rate from 6 April 2026.
Step 2: Brief Your Team
Ensure employees understand:
The new rate and when it applies
What documentation they need to provide
Your submission deadlines for mileage claims
Step 3: Review Your Payroll Process
If you process mileage through payroll, update your systems to apply the correct rate automatically.
Step 4: Consider Retroactive Payments
Decide whether you'll top up April and May 2026 claims. While not required, it's a goodwill gesture that costs your business nothing extra in real terms (it's tax-deductible).
Step 5: Budget for the Increase
Factor the additional cost into your overhead projections. For planning purposes, assume a 22% increase in annual mileage reimbursement costs.
Mileage Allowance vs Company Vehicles
The mileage allowance increase might prompt you to reconsider whether employees should use their own vehicles or company-provided ones.
Employee-owned vehicles (mileage allowance):
Pros:
No capital outlay for vehicles
No insurance, maintenance, or MOT costs
Simple administration
Tax-free if you stick to approved rates
Cons:
Costs rise with increased mileage
Less control over vehicle condition
Employee bears depreciation cost
Company vehicles:
Pros:
Fixed, predictable costs
Control over branding and condition
Potential for better deals on fleet insurance
Cons:
Capital investment required
Ongoing running costs (insurance, tax, maintenance)
Company Car Tax liability for employees (personal use)
Benefit-in-Kind (P11D) reporting requirements
For construction businesses where annual mileage per employee exceeds 15,000-20,000 miles, company vehicles often become more cost-effective, especially when you factor in our Annual Investment Allowance advice which can provide up to 100% tax relief on vehicle purchases.
Mileage Allowance FAQs
Q: Do I have to pay my employees the new 55p mileage allowance rate?
A: No. The 55p rate is the maximum you can pay tax-free. You can pay less, but employees can claim tax relief on the difference.
Q: Can I backdate the mileage allowance increase to January 2026?
A: No. The legal effective date is 6 April 2026. Any journeys before this date are limited to the old 45p rate.
Q: What if my employee uses their vehicle for both business and personal use?
A: Only business miles qualify for the mileage allowance. Commuting to a regular workplace doesn't count as business travel.
Q: How does the mileage allowance work with the Flat Rate VAT Scheme?
A: If you're on the Flat Rate VAT Scheme for construction businesses (which lets you keep 10.5% profit on turnover), mileage reimbursements to employees don't affect your VAT calculations. For more on VAT schemes for construction businesses, see our Tax Savings Checklist.
Q: Can company directors claim the 55p mileage allowance?
A: Yes, if you're a director using your own vehicle for company business, your limited company can reimburse you at 55p per mile tax-free.
Making Mileage Allowance Work
The increase to 55p per mile is long overdue, and for construction businesses where vehicles are essential tools of the trade, it represents meaningful tax relief.
Key takeaways:
Update your travel policy to reflect the new mileage allowance rate from 6 April 2026
Ensure accurate record-keeping for all business journeys
Apply the correct rate based on journey date, not claim date
Consider whether the mileage allowance approach still makes financial sense versus company vehicles
Factor the increase into your overhead budgets
The new rate recognizes the real cost of business motoring in 2026 and provides a fair, tax-efficient way to compensate employees who use their personal vehicles for work.
Need help implementing the new mileage allowance rules or reviewing your vehicle strategy?
Brian Pusser & Co Ltd specializes in helping construction and trades businesses across Kent, Medway, Surrey, East Sussex, and Essex optimize their tax position.
From CIS scheme compliance to capital allowances on vehicles, we make sure you're claiming everything you're entitled to - and nothing you're not.
Contact us today to discuss how the mileage allowance changes affect your specific situation.
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