HMRC mileage rate increase to 55p: what agency owners need to know

Key takeaways

• HMRC increased the approved mileage rate to 55p per mile for 2026/27. This is the rate you can pay your employees (including yourself as a director) tax-free for business travel in their own vehicle.
• The 55p rate applies to the first 10,000 miles per tax year. After that, the rate drops to 25p per mile. This is per vehicle, not per person.
• You can claim the difference if your agency pays less than 55p. If you pay your team 45p per mile, you can claim the remaining 10p as a tax deduction for the agency.
• Directors can use the 55p rate for their own vehicles. This is a legitimate way to extract tax-free income from your agency, as long as the travel is genuinely for business.
• Keep proper mileage records. HMRC expects a log of each journey, including date, purpose, start and end locations, and miles driven. No log means no claim.

What is the HMRC mileage rate increase to 55p and why does it matter for agency owners?

The HMRC mileage rate increase to 55p: what agency owners need to know starts with a simple fact. HMRC sets an approved rate for reimbursing employees who use their own car for business travel. This rate is called the Approved Mileage Allowance Payment (AMAP). For the 2026/27 tax year, that rate is 55p per mile.

This matters because it is tax-free. If your agency pays you or your team 55p per mile for business travel, neither you nor your employees pay tax or National Insurance on that money. The agency also gets a corporation tax deduction for the payment.

For marketing and creative agencies, this is especially relevant. Agency owners often drive to client meetings, site visits, shoots, events, and networking sessions. If you use your own car for these trips, the 55p rate is your benchmark for tax-efficient reimbursement.

The rate increased from 45p to 55p in recent years to reflect rising fuel and vehicle costs. This is a permanent change, not a temporary one. So if you have not updated your agency mileage reimbursement policy, you are leaving money on the table.

How does the 55p mileage rate work for agency directors?

The 55p mileage rate directors can use is exactly the same as the rate for employees. As a director, you are technically an employee of your own company. So you can pay yourself 55p per mile for business travel in your personal car.

This is a powerful tool for agency owners. It allows you to take money out of your agency tax-free, as long as the travel is genuinely for business. A trip to a client meeting counts. A drive to a networking event counts. Your daily commute from home to your office does not count.

Here is how it works in practice. You drive 100 miles to visit a client. Your agency pays you £55 (100 miles x 55p). You receive that £55 in your personal bank account. No tax is due on it. The agency deducts the £55 as a business expense, reducing its corporation tax bill.

Compare this to taking the same £55 as a dividend. You would pay dividend tax on it. As a salary, you would pay income tax and National Insurance. The mileage rate is one of the most tax-efficient ways to extract value from your agency.

But there is a catch. You must have a proper mileage log. HMRC can and does check these claims. If you are audited and cannot show a log, you could face a tax bill plus penalties.

What counts as business travel for agency owners?

Business travel expenses agency owners can claim must meet a simple test. The journey must be for a business purpose, and it must not be ordinary commuting. Ordinary commuting is the trip from your home to your regular place of work.

For agency owners, your regular place of work is usually your office. If you work from home, your home can be considered your regular place of work. But HMRC looks at this carefully. If you have a separate office space that you use regularly, that is your workplace.

Examples of business travel that qualify for the 55p rate include:

• Driving from your office to a client's office for a meeting
• Travel between your home and a client site if that client is not your regular workplace
• Driving to a supplier meeting, a shoot location, or an event
• Travel between different offices or worksites your agency operates

Examples that do NOT qualify include:

• Your daily drive from home to your agency office
• A trip to the supermarket to buy lunch
• Driving to a client site that you visit every day as your main workplace

The line can get blurry for agency owners who work from home. If your home is your main office and you drive to a client meeting, that is business travel. If you drive to a co-working space you use twice a week, that might be commuting. When in doubt, keep a log and ask your accountant.

How do you claim the 55p mileage rate for your agency team?

Agency mileage reimbursement for your employees follows the same rules. You can pay your team 55p per mile for business travel in their own cars. This payment is tax-free for them and deductible for your agency.

Many agencies pay less than the HMRC rate. A common figure is 45p per mile. If you pay less, your employees can claim the difference on their personal tax return. But this creates extra admin for them and for you.

A better approach is to pay the full 55p rate. This simplifies things. Your team gets the full tax-free amount. Your agency gets the full deduction. Everyone wins.

If you have employees who use company cars, the rules are different. The 55p rate only applies to personally owned vehicles. For company cars, you use the actual fuel costs or a different advisory fuel rate.

For most marketing and creative agencies, the team uses their own cars. So the 55p rate is the right one to use. Update your expense policy to reflect the new rate. Make sure your team knows they can claim it.

What records do you need to keep for HMRC mileage claims?

HMRC expects proper records for any business travel expenses agency claims. Without records, your claim is at risk if HMRC investigates. The good news is that the record-keeping is simple.

For each business journey, you need to record:

• The date of the journey
• The start and end locations (including postcodes)
• The purpose of the journey (e.g., "client meeting with ABC Ltd")
• The number of miles driven
• The vehicle registration (if you have multiple vehicles)

You can keep this log in a spreadsheet, a notebook, or a mileage tracking app. Apps like MileIQ, Driver, or even a simple Google Sheet work well. The key is consistency. Record every journey as it happens, not at the end of the tax year.

For directors, your mileage log is especially important. HMRC knows that directors sometimes claim personal travel as business travel. A clear, contemporaneous log protects you.

Keep your mileage records for at least six years after the end of the tax year. HMRC can ask to see them up to that point. If you cannot produce them, your claim can be denied.

What happens after 10,000 miles? The 25p rate explained

The 55p rate only applies to the first 10,000 miles per vehicle per tax year. Once you pass 10,000 miles, the rate drops to 25p per mile for the rest of the year. This is per vehicle, not per person.

For most agency owners, 10,000 miles is a lot of business travel. That is roughly 200 miles per week, every week, for a year. Unless you are driving to client meetings multiple times a week across long distances, you will likely stay under 10,000 miles.

But if you have a sales-heavy role or cover a large geographic area, you might hit the limit. In that case, the rate drops to 25p per mile for any additional miles. This is still tax-free, just at a lower rate.

If you have multiple vehicles, each one gets its own 10,000 mile allowance. So if you use two different cars for business travel, you can claim 55p for the first 10,000 miles in each car.

Track your mileage throughout the year so you know when you hit the threshold. Your accounting software or mileage app should be able to tell you.

Can you claim the 55p rate for electric vehicles?

Yes, the 55p rate applies to electric vehicles (EVs) too. HMRC does not differentiate between petrol, diesel, hybrid, or electric cars for the AMAP rate. So if you drive an EV for business, you can still claim 55p per mile.

This is actually very generous for EV drivers. The cost of electricity per mile is much lower than petrol or diesel. So the 55p rate often more than covers your actual costs. This makes EV mileage claims even more tax-efficient.

If your agency provides a company car that is an EV, the rules are different. You would use the advisory fuel rate for company cars, which is much lower. But for personally owned EVs, the 55p rate applies.

Many agency owners are switching to EVs for tax reasons. The 55p rate is one more reason to consider it. You get a higher tax-free reimbursement than your actual costs, and you reduce your carbon footprint.

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

We see the same mistakes again and again with business travel expenses agency owners claim. Here are the most common ones to avoid.

Mistake 1: Claiming commuting as business travel. Your daily drive to your office is not business travel. Only trips that are for a business purpose and not your regular commute count. HMRC is strict on this.

Mistake 2: Not keeping a mileage log. This is the biggest one. Without a log, you have no evidence. If HMRC asks, you cannot prove your claim. Keep a log from day one.

Mistake 3: Using the wrong rate. Some agencies still use 45p per mile because they have not updated their policy. The rate is 55p. Update your expense policy and your accounting software.

Mistake 4: Claiming for a company car at the 55p rate. The 55p rate is for personally owned vehicles only. Company cars use different rules. Check with your accountant if you are unsure.

Mistake 5: Not claiming at all. Some agency owners simply forget to claim mileage. They drive to client meetings and never record it. That is free money you are leaving on the table. Set up a system to track every business journey.

How does the 55p rate affect your agency's tax position?

The HMRC mileage rate increase to 55p: what agency owners need to know also covers the tax impact on your agency. When you pay mileage at the 55p rate, your agency gets a corporation tax deduction for the full amount.

Here is an example. Your agency pays you £2,000 in mileage reimbursements over the year. That £2,000 is a deductible business expense. If your corporation tax rate is 25%, that saves your agency £500 in tax.

You personally receive the £2,000 tax-free. So the combined tax saving is significant. You get money in your pocket tax-free, and your agency pays less tax.

This is why mileage claims are such a powerful tool for agency owners. They are one of the few ways to move money from your company to yourself without triggering a tax charge.

But remember, the mileage must be genuine. HMRC will challenge inflated or fabricated claims. Keep your log, be honest, and claim what you are entitled to.

Should you use a mileage app or a manual log?

For agency mileage reimbursement, a mileage app is almost always better than a manual log. Apps automatically track your journeys using GPS. They record the start and end points, the distance, and the time. You just add the purpose.

Popular mileage apps include MileIQ, Driver, TripLog, and Everlance. Most have a free tier for basic tracking. Paid versions offer more features like automatic categorisation and HMRC-compliant reports.

A manual log in a notebook or spreadsheet works too. But it is easy to forget journeys or make errors. Apps reduce the admin burden and give you a clean record at the end of the year.

Whichever method you choose, be consistent. Record every business journey. Do not try to reconstruct your mileage at the end of the tax year. That is when mistakes happen.

Your accountant can help you set up a system that works for your agency. If you are not sure where to start, ask them. It is a small investment of time that pays off in tax savings.

What if HMRC investigates your mileage claims?

HMRC can investigate any tax claim, including mileage. If they do, they will ask to see your mileage log. They will check that the journeys were genuinely for business. They will look for patterns that suggest personal travel is being claimed.

If you have a proper log, the investigation is usually straightforward. You show them the records, they check a sample of journeys, and they close the case. If you do not have a log, you are in trouble. HMRC can deny the entire claim and charge penalties.

The risk of investigation is higher for directors who claim large mileage amounts. If you claim 10,000 miles a year, HMRC is more likely to look at your claim than someone who claims 500 miles. This is not a reason to avoid claiming. It is a reason to keep excellent records.

Specialist accountants for marketing agencies can help you prepare for an HMRC investigation. They know what HMRC looks for and can help you build a robust mileage policy. If you are worried about your claims, score your agency's financial health and get tailored advice.

How to update your agency's mileage policy for the 55p rate

If your agency has not updated its mileage policy, now is the time. Here is a simple process to follow.

First, confirm the new rate with your accountant. The 55p rate is confirmed for 2026/27, but rates can change. Your accountant will know the current rate.

Second, update your expense policy document. Change the mileage rate from whatever it was to 55p per mile. Make sure the policy states that this applies to personally owned vehicles for business travel.

Third, communicate the change to your team. Tell them the rate has increased. Remind them to keep a mileage log. Show them how to submit a claim.

Fourth, update your accounting software. Most software like Xero, QuickBooks, or FreeAgent lets you set a default mileage rate. Change it to 55p so claims are automatically calculated correctly.

Fifth, set a reminder to review the rate each year. HMRC usually announces the rate in the spring for the following tax year. Put a note in your calendar to check for changes.

Getting professional help with your agency's mileage claims

The HMRC mileage rate increase to 55p: what agency owners need to know is straightforward, but the details matter. A small mistake can cost you tax savings or trigger an HMRC investigation. That is why many agency owners work with specialist accountants.

At Sidekick Accounting, we help marketing and creative agencies get their finances right. We know the rules inside out. We can help you set up a mileage tracking system, update your expense policy, and maximise your tax savings.

If you want to see how your agency's financial health compares to others, take our free Agency Profit Score. It takes five minutes and gives you a personalised report. You will see where you are doing well and where you can improve.

Getting mileage right is a small thing that adds up over time. A few thousand pounds in tax-free mileage each year, properly claimed, makes a real difference to your take-home pay. Do not leave it to chance.