HMRC mileage rate increase to 55p from 6 April 2026: what agency owners need to know

Key takeaways

• The HMRC mileage rate increases to 55p per mile from 6 April 2026 for the first 10,000 business miles in cars and vans. This is a 10p rise from the current 45p rate.
• This applies to agency owners, directors, and employees who use their personal vehicles for business travel. The rate covers fuel, wear and tear, insurance, and depreciation.
• Miles over 10,000 in a single tax year stay at 25p per mile. This rate has not changed. Plan your travel to maximise the higher rate.
• You can still claim capital allowances or mileage but not both on the same vehicle. Choose the method that saves you more tax.
• Keep a mileage log for every business trip. HMRC can ask for it. Without one, you cannot claim the tax relief.

What is the HMRC mileage rate increase to 55p from 6 April 2026?

The HMRC mileage rate increase to 55p from 6 April 2026 means you can claim 55p for every business mile you drive in your own car or van. This applies to the first 10,000 miles in a single tax year. The previous rate was 45p. The new rate is confirmed on GOV.UK for the 2026/27 tax year.

This rate is called the Advisory Fuel Rate or the Approved Mileage Allowance Payment (AMAP). It covers all the costs of running your car for business. That includes fuel, insurance, repairs, tyres, and depreciation. You do not need to keep receipts for these individual costs. The 55p rate is a simplified way to claim.

For marketing and creative agency owners, this is a significant change. If you visit clients, attend networking events, or travel between offices, those miles now earn you more tax relief. A director driving 10,000 business miles in 2026/27 can claim £5,500 in tax-free mileage payments. Under the old 45p rate, that same mileage was worth £4,500. The difference is £1,000.

This rate applies to cars and vans only. Motorcycles have a separate rate of 24p per mile. Bicycles stay at 20p per mile. The 55p rate is the current confirmed position from HMRC for the 2026/27 tax year. Rates can change in future years. Always check the latest GOV.UK advisory fuel rates guidance for updates.

How does the HMRC mileage rate increase affect agency owners?

The HMRC mileage rate increase to 55p from 6 April 2026 directly affects how much tax-free income you can take from your agency. If you are a director or employee, your agency can pay you 55p per business mile without you paying tax on it. If you are a sole trader, you claim the 55p as a business expense against your profits.

For limited company directors, the impact is twofold. First, you receive more money tax-free from your agency. Second, your agency gets a corporation tax deduction for the mileage payment. The agency saves tax, and you keep more cash. It is one of the most tax-efficient ways to extract value from your business.

For sole traders and partners, the benefit is simpler. You deduct 55p per business mile from your trading profits. This reduces your income tax and National Insurance bill. If you drive 8,000 business miles in a year, that is a £4,400 deduction. At a 40% tax rate, that saves you £1,760.

The change matters most for agencies with high travel demands. SEO agencies visiting client offices. PR agencies attending events. Creative agencies scouting locations. If your team travels regularly, the new rate increases your agency mileage reimbursement 2026/27 significantly.

What is the 10,000 mile limit and why does it matter?

The 55p rate only applies to the first 10,000 business miles you drive in a single tax year. Every mile after that drops to 25p. This 10,000 mile threshold is per vehicle, not per person. If you drive two different cars for business, each one gets its own 10,000 mile limit at 55p.

This matters for agency owners who drive a lot. If you cover 15,000 business miles in a year, your claim looks like this: 10,000 miles at 55p equals £5,500. Then 5,000 miles at 25p equals £1,250. Your total claim is £6,750. Under the old 45p rate, the same 15,000 miles would have been 10,000 at 45p (£4,500) plus 5,000 at 25p (£1,250). Total: £5,750. The new rate saves you an extra £1,000.

For agency owners with high mileage, the 25p rate for additional miles is still worth claiming. It covers fuel costs at least. But the real benefit is in the first 10,000 miles. If you have multiple vehicles in your agency, consider how you allocate business travel across them. Spreading miles across two cars can double your 55p allowance.

Keep in mind that the 10,000 mile limit resets each tax year on 6 April. You do not need to worry about carrying over unused miles. Just track your miles from 6 April to the following 5 April each year.

How do agency directors claim the 55p mileage rate?

Agency directors claim the 55p mileage rate by submitting a mileage expense report to their own company. The company pays you the 55p per mile tax-free. The company then deducts that payment as a business expense, reducing its corporation tax bill. This is the standard process for 55p mileage rate directors.

In practice, the process is straightforward. You keep a mileage log for each business trip. Record the date, start location, end location, purpose of the trip, and miles driven. At the end of each month or quarter, total your business miles. Multiply by 55p. Submit that figure to your accountant or process it through your payroll software.

The payment can be made as a separate expense reimbursement or added to your salary. It is not subject to income tax or National Insurance as long as it stays within the approved rate. If you pay yourself more than 55p per mile, the excess is taxable. Stick to the HMRC rate to keep things clean.

One common question is whether you need a fuel receipt. The answer is no. The 55p rate is a flat rate that covers all running costs. You do not need to prove how much you spent on petrol. You only need to prove the miles were for business. That is where your mileage log matters.

What records do you need to keep for business travel expenses?

HMRC requires you to keep a mileage log for every business journey. This is non-negotiable. Without a log, you cannot claim the 55p rate. The log does not need to be fancy. A spreadsheet works. A notebook works. A mileage tracking app works better. The key is consistency and accuracy.

Your mileage log should include: the date of the trip, the starting point, the destination, the purpose of the trip, and the number of miles driven. For agency owners, common business trips include client meetings, site visits, networking events, conferences, and travel between different office locations. Commuting from home to your regular office does not count as business travel.

HMRC can ask to see your mileage records up to six years after the tax year ends. If you cannot produce them, they can deny your claim. They can also charge you interest and penalties on any tax you should have paid. This is a real risk for agency owners who are casual about record keeping.

Using a mileage tracking app saves time and reduces errors. Apps like MileIQ, TripLog, or even Google Maps timeline can automate the process. They track your trips, classify them as business or personal, and generate reports for your accountant. The cost of the app is a legitimate business expense too.

Can you claim mileage on an electric car?

Yes, you can claim the 55p mileage rate on an electric car. The rate is the same for electric, hybrid, and petrol or diesel cars. HMRC does not differentiate. The 55p rate covers all running costs, including electricity. For electric car owners, this can be very beneficial because the actual cost per mile is much lower than 55p.

For agency owners driving electric cars, the 55p rate often exceeds your actual costs. Electricity costs roughly 3p to 5p per mile depending on your tariff. The remaining 50p to 52p per mile is tax-free profit. This makes electric cars extremely tax-efficient for business travel.

There is a catch. If you claim the 55p rate, you cannot also claim capital allowances or the writing down allowance on the same vehicle. You must choose one method. For most agency directors, the mileage method is simpler and more profitable, especially with the new 55p rate. But if you buy an expensive electric car, the capital allowance route might save you more tax. Run the numbers both ways.

For employees using their own electric car for business, the 55p rate applies in the same way. Your employer pays you 55p per mile tax-free. You do not need to prove your electricity costs. The flat rate covers everything.

What are the common mistakes agency owners make with mileage claims?

The most common mistake is claiming commuting miles as business miles. Travel from your home to your regular place of work is commuting. It is not business travel. HMRC is very clear on this. If your agency has a fixed office and you drive there each day, those miles are not claimable. Only travel beyond your normal commute counts.

The second mistake is not keeping a mileage log. Many agency owners estimate their miles at the end of the year. HMRC does not accept estimates. You need a contemporaneous record. That means recording each trip as it happens, not reconstructing it months later. If HMRC investigates, estimated claims are almost always denied.

The third mistake is mixing business and personal trips without apportioning the miles. If you drive to a client meeting and stop at the supermarket on the way back, you cannot claim the whole trip. You can only claim the business portion. A good mileage log separates business miles from personal miles clearly.

The fourth mistake is claiming the 55p rate on a company car. The 55p rate is for personal vehicles used for business. If your agency owns the car and you use it for business, different rules apply. You claim actual fuel costs instead. Check with your accountant if you are unsure which method applies to your situation.

How does the mileage rate interact with other vehicle expenses?

When you claim the 55p mileage rate, you cannot also claim separate expenses for fuel, insurance, repairs, or depreciation on the same vehicle. The 55p rate is an all-inclusive rate. It covers everything. This is the trade-off for simplicity. You trade detailed receipts for a flat rate.

For agency owners, this means you need to choose between two methods. Method one is the mileage method. You claim 55p per mile and forget about individual costs. Method two is the actual cost method. You track every expense related to the vehicle and claim the business proportion. You can also claim capital allowances on the vehicle purchase.

The mileage method is usually better for agency directors who drive moderate distances. It is simpler and the 55p rate is generous. The actual cost method can be better if you have very high mileage or a very expensive car. But it requires much more record keeping. Most agency owners we work with prefer the mileage method.

You cannot switch between methods on the same vehicle once you have chosen. Pick the method that gives you the best tax result for the whole time you own the car. If you are unsure, run a comparison. Your accountant can help you decide.

What about employees and freelancers claiming mileage?

Employees of your agency can claim the 55p mileage rate if they use their own car for business travel. Your agency pays them 55p per mile tax-free. Your agency gets a corporation tax deduction. The employee gets the cash without paying tax or National Insurance. It is a win-win.

For freelancers and contractors working with your agency, the rules are different. Freelancers are self-employed. They claim mileage on their own tax return using the 55p rate. They do not submit expenses to your agency. They handle it themselves. Your agency just pays their invoice. The freelancer handles their own tax affairs.

If you have employees who travel frequently, set up a clear mileage policy. Specify what counts as business travel. Require mileage logs. Set a submission deadline each month. This keeps things organised and reduces the risk of HMRC challenges. A good policy also helps employees understand what they can claim.

For business travel expenses agency owners, having a written mileage policy is a sign of good financial management. It shows HMRC that you take compliance seriously. It also protects you if an employee makes a mistake on their claim.

How do you calculate your tax saving from the new mileage rate?

Calculating your tax saving is simple. Multiply your business miles by 55p. That is your total mileage claim. Then multiply that figure by your tax rate. That is your tax saving. For a basic rate taxpayer at 20%, a £5,500 claim saves £1,100 in tax. For a higher rate taxpayer at 40%, the same claim saves £2,200.

For limited company directors, the saving is even better. Your agency pays you £5,500 tax-free. The agency deducts that £5,500 from its profits. At 19% corporation tax, the agency saves £1,045. You receive £5,500 tax-free. Combined, the tax saving is £1,045 for the company plus whatever income tax you would have paid on that £5,500 if it were salary or dividends.

For sole traders, the calculation is direct. Your mileage claim reduces your taxable profit. If you are a higher rate taxpayer, every £1,000 of mileage saves you £400 in income tax plus £20 in National Insurance (Class 4 at 2%). The total saving is roughly 42% of your mileage claim.

Use these numbers to decide whether the mileage method is right for you. If you drive 5,000 business miles a year, your claim is £2,750. The tax saving at 40% is £1,100. That is real money. For agency owners with higher mileage, the savings are substantial.

What should you do now to prepare for the April 2026 change?

Start tracking your mileage now if you are not already doing so. Even though the new rate starts in April 2026, you need a mileage log for the current year too. Good habits take time to build. Start today. Use an app or a simple spreadsheet. Record every business trip.

Review your current mileage claims. Are you claiming the right rate? Are you keeping proper records? If you have been estimating, stop. HMRC is increasingly using data analytics to flag unusual claims. A clean, accurate mileage log protects you from investigation.

Talk to your accountant about the best method for your vehicle. If you are thinking of buying a new car, factor in the mileage rate. Electric cars are particularly attractive with the 55p rate. But the capital allowance route might be better for expensive vehicles. Get professional advice before you commit.

Finally, update your agency's expense policy. Include the new 55p rate. Clarify what counts as business travel. Set expectations for record keeping. A clear policy prevents confusion and ensures everyone in your agency benefits from the change. If you want to benchmark your agency's overall financial health, take our free Agency Profit Score. It takes five minutes and gives you a personalised report.