Understanding HMRC’s mileage and fuel rates for 2026/27

As the 2026/27 tax year gets underway, businesses should ensure they are applying HMRC’s current mileage and fuel allowances correctly.

The latest Advisory Fuel Rates (AFRs), which came into effect from the start of the tax year, continue to play an important role in reimbursing employees for business travel in company cars, while also helping employers manage tax compliance efficiently.

AFRs apply specifically to employees driving company cars and are reviewed regularly by HMRC to reflect fluctuations in fuel and electricity costs. These rates are designed to simplify the process of reimbursing employees for business mileage, or alternatively, recovering the cost of private fuel use in company vehicles. Where employers reimburse at or below the approved rates, there is generally no taxable benefit or Class 1A National Insurance liability.

The rates now in force from 1 June 2026 have increased across petrol, diesel and LPG vehicles, while the electric vehicle rates remain unchanged. Company cars are now reimbursed at:

Electric vehicles (EV) continue to receive particular attention as more businesses transition their fleets towards lower-emission transport. HMRC currently distinguishes between home charging and public charging costs for fully electric company cars, recognising the variation in charging expenses.

However, for many employees driving electric vehicles, the practical reality can be more complex than the published rates suggest. The 7p per mile home charging allowance is largely based on employees accessing specialist overnight EV tariffs from their energy suppliers. While these reduced tariffs can make home charging economical, not all suppliers offer the same flexibility. Some energy providers restrict the number of electric vehicles or chargers that can be linked to a discounted tariff, which may create challenges for households operating more than one EV.

Where employees can access reduced overnight electricity rates, the HMRC allowance may align reasonably closely with actual charging costs. For example, a vehicle achieving around four miles per kWh charged overnight at approximately 7p per kWh broadly matches the 7p per mile reimbursement rate. However, charging outside these reduced tariff periods can produce a very different outcome. Daytime electricity costs can exceed 30p per kWh, meaning the actual running cost may rise above the approved reimbursement rate, leaving employees effectively subsidising business travel themselves.

The gap becomes even more significant when employees rely on public rapid charging for longer business journeys. HMRC’s 15p per mile advisory rate for commercial charging is based on broader market averages, but in practice many public rapid chargers operate at considerably higher rates. While slower residential-style charging points may offer lower costs, they are often impractical for employees undertaking business travel where time constraints make rapid charging essential.

Rapid charging costs can frequently range between 75p and 89p per kWh. Depending on vehicle efficiency, this can equate to a real-world running cost of approximately 20p to 22p per mile, substantially above HMRC’s approved reimbursement level. As a result, some employees using electric vehicles for longer business journeys may find that the current rates do not fully compensate their actual costs.

This is an important consideration for employers as electric vehicle adoption continues to increase across company fleets. Businesses may wish to review whether existing reimbursement policies remain appropriate and whether additional support or flexibility is needed for employees undertaking significant business mileage in EVs.

It is a similar situation when looking at petrol, diesel and LPG vehicles, however this will vary much more depending on the fuel efficiency of the vehicle in question.

Although AFRs are designed to simplify reimbursement arrangements, confusion can still arise around the distinction between AFRs and Approved Mileage Allowance Payments (AMAPs). AFRs apply only where employees drive company cars, whereas AMAPs relate to employees using their own vehicles for business travel.

AMAP are designed to compensate employees for the combined running costs of their vehicle. While fuel is part of the equation, valued at the AFR, it will additionally cover other costs such as maintenance and insurance.

Employers should ensure they are applying the correct rules, particularly where car allowance arrangements are in place, as incorrect treatment can create payroll complications and potential HMRC scrutiny.

While the headline rate has risen by 10p per mile for the first 10,000 business miles travelled, it is worth noting that the rates for mileage above 10,000 miles remain unchanged, as do the allowances for motorcycles and bicycles. Although many mileage claims fall within the first 10,000-mile band, many employees who travel extensively for work may feel the changes do not go far enough. In addition, cyclists and motorcyclists have seen no increase at all. Given that this is the first increase to the main mileage rate since 2011, the uplift is welcome, but it still falls some way short of reflecting the cumulative impact of inflation and the significant rise in motoring costs experienced over the past decade and a half.

Accurate record-keeping also remains essential. HMRC expects employers and employees to maintain clear mileage records detailing dates of travel, destinations and the business purpose of each journey. Good documentation not only supports expense claims but can also help reduce the risk of challenges during an HMRC enquiry.

For many organisations, mileage and fuel allowances are no longer simply an administrative exercise. They now form part of wider conversations around sustainability, employee benefits and operational efficiency. Applying the correct HMRC-approved rates while maintaining robust policies and processes can help businesses support employees effectively while avoiding unnecessary tax exposure.

If you would like advice on mileage claims, company car taxation or reviewing your employee expense policies for the 2026/27 tax year, please get in touch with the team at Hillier Hopkins. We would be happy to answer any questions you may have.