45p and 25p Mileage Rates Explained: How Approved Mileage Allowance Payments Work in 2026/27
HMRC's Approved Mileage Allowance Payments let employers reimburse business mileage tax-free at 45p a mile for the first 10,000 miles and 25p after that. Here's exactly how the thresholds, tax and NI rules apply.
The Two-Tier Rate Structure
| Business Mileage in the Tax Year | Approved Rate (Car/Van) |
|---|---|
| First 10,000 miles | 45p per mile |
| Miles beyond 10,000 | 25p per mile |
The tiered structure reflects that fixed motoring costs (depreciation, insurance) are spread across more miles once annual business mileage is very high, reducing the genuine average cost per additional mile beyond the 10,000-mile point.
Worked Example
| Annual Business Mileage | Calculation | Total Tax-Free Reimbursement |
|---|---|---|
| 6,000 miles | 6,000 × 45p | £2,700 |
| 10,000 miles | 10,000 × 45p | £4,500 |
| 14,000 miles | (10,000 × 45p) + (4,000 × 25p) | £4,500 + £1,000 = £5,500 |
If Your Employer Pays Less Than the Approved Rate
| Employer's Actual Rate | HMRC Approved Rate | Shortfall |
|---|---|---|
| 30p per mile | 45p per mile (first 10,000) | 15p per mile |
You can claim Mileage Allowance Relief on the shortfall via Self Assessment or a P87 form, which reduces your taxable income by the total shortfall across your genuine business mileage for the year — effectively recovering tax relief on the gap between what you were paid and the full approved rate.
If Your Employer Pays More Than the Approved Rate
Any excess above the approved rate is treated as taxable additional earnings — not a tax-free perk — and should be processed through payroll or reported on a P11D, with income tax and National Insurance applying to the excess amount, same as any other additional taxable pay.
What Counts as Business Mileage
| Qualifies | Doesn't Qualify |
|---|---|
| Travel to a temporary workplace | Ordinary commuting to your permanent workplace |
| Client visits, site visits | Personal journeys |
| Travel between different work locations for the same employer | Home-to-office travel on a normal working day |
Other Rates Worth Knowing
| Vehicle/Situation | Approved Rate |
|---|---|
| Motorcycle | Flat rate, lower than the car rate, regardless of annual mileage |
| Bicycle | Flat rate per mile, the lowest of the standard rates |
| Additional business passenger (car/van) | A separate tax-free passenger rate per mile, per qualifying passenger, on top of the driver's own mileage rate |
The passenger rate is a frequently overlooked detail — if you regularly give a colleague a lift on a shared business trip, that additional passenger mileage can be reimbursed tax-free on top of your own mileage claim, provided the passenger is also travelling for business purposes.
Frequently asked questions
Related reading
Umbrella Company Deductions UK 2026: What You Should and Should Not Pay
Umbrella companies deduct PAYE, NI, and a margin fee before paying contractors. But some umbrella schemes make deductions that are unlawful. Here is what is legitimate, what is not, and how HMRC is cracking down in 2026.
Agency Nurse Tax and IR35 UK 2026: PAYE, Umbrella, or Limited Company?
Most agency nursing work is taxed via PAYE or an umbrella company, and NHS-facing agency roles are almost always treated as inside IR35, meaning limited company working rarely delivers the tax savings some nurses expect. Here is the 2026 breakdown.
Armed Forces Reservist Pay and Tax UK 2026/27
Reservist training pay and mobilisation pay are both taxable, but a reservist's civilian employer receives compensation for their absence, and specific NI rules apply during mobilisation. Here is how reservist pay and tax work in 2026/27.