Vehicle Mileage Schemes 2026/2027

HMRC have announced a 10p increase to the Approved Mileage Allowance Payment rate for the first 10,000 miles. The tax free amount that employers can reimburse for employees using their own vehicles is increasing to 55p. The rate of 25p per mile for each business mile over 10,000 remains.

For NICs, this also mean a consequential amount that can be disregarded from Class 1 earnings. The increase is retrospective, taking effect from 6 April 2026

Following the June release of Cascade, the Vehicle Mileage Rates will increase to 55p in Legislation > Vehicle Mileage Schemes.

Schemes paying below 45p per mile
For any schemes that pay below the approved 45p per mile, continue to pay using calculation method of Gross Pay Item Only (P11D) at the rate you have set in Vehicle Mileage Scheme > Rates. No further changes are required.

Schemes paying 45 per mile, wanting to pay the new approved 55p per mile

Future Payments
For any schemes currently paid at 45p per mile, you will need to increase the rate paid for the 1st 10,000 miles in Settings > Application Data > Vehicle Mileage Schemes > View > Rates, increasing the amount to 55p per mile. This will ensure any future payments are paid at 55p per mile

Backdating Payments
For backdating payments, there are two options. For both options, please wait until after the June release of Cascade

Option 1 - Re-running Payroll

1. Await the update to Cascade on Wednesday June 3rd.

2. Ensure you have payslips saved for all periods run in 2026/27 tax year.

3. Restore payrolls back to period 1.

4. Change the rate of payment to 55p per mile in Settings > Application Data > Vehicle Mileage Schemes > View > Rates.

5. Re-run payrolls with new mileage rates, saving payslips and submitting FPS as a correction to an earlier submission.

6. Compare Net Pay on payslips before and after re-run, pay the employee the difference in net pay during the next payroll run.

Option 2 - Backdating payments without re-running payroll

1. Await the update to Cascade on Wednesday June 3rd.

2. Change the rate of payment to 55p per mile in Settings > Application Data > Vehicle Mileage Schemes > View > Rates.

3. Print the Vehicle Mileage Report from Reporting > Reports and Analysis selecting YTD as the Report Range. For Miles Travelled below 10,000 miles, an additional 10p per mile can be paid for these miles if required. Multiply the miles travelled by 0.10 and pay the amount in the next payroll run as a net payment.

Example
An employee has travelled 100 miles to date, and has been paid at 45p per mile (£45). However, they could have been paid at 55p per mile if the employer agrees to pay the Approved Mileage Rate.

100 * 0.10p = £10. Pay the employee the £10 as a Net Payment in the next payroll run.

4. Once the payment has been made, update the YTD amounts paid in Employee Details > Vehicle Mileage, updating the following amounts by the additional payment you have made for each employee:

  • Amount Paid YTD

  • Tax Relief YTD

  • NI Relief YTD

Schemes paying above 45p per mile

For any schemes that pay above 45p per mile currently, the tax and NIC will be incorrect for any payroll ran before the release on June 3rd. Employees will have overpaid tax and NIC, as the relief will only be paid up to 45p. To correct, you will need to restore back to period 1, re-run payrolls and re-submit FPS.

Compare net pay on the payslips from when the employee was initially paid compared to the re-run, and make a Net payment for the difference in the next payroll run.