For many years, employees and directors using their own cars for business journeys have relied on HMRC’s approved mileage allowance rates as a simple way to recover motoring costs. However, despite the recent increase in the approved rate from 45p to 55p per mile from 6 April 2026, many motorists may still find themselves substantially out of pocket once inflation and rising running costs are taken into account.

The original 45p per mile rate was introduced in April 2011 and remained unchanged for fifteen years. During that period the UK experienced significant inflation, particularly in the years following the pandemic, when fuel prices, insurance premiums, servicing costs and vehicle finance charges all rose sharply.

When inflation is taken into account, the original 45p rate introduced in 2011 would need to be worth approximately 65p to 67p per mile by March 2026 to provide the same real level of reimbursement. This means that, even after the increase to 55p per mile, the approved allowance still falls noticeably below the inflation adjusted equivalent.

For business owners and employees who regularly travel for work, the financial impact can become considerable. A driver covering 10,000 business miles per year under the old 45p system would have received £4,500. Had the rate increased in line with inflation since 2011, the equivalent reimbursement could have been closer to £6,600.

The issue is not simply one of fuel prices. Modern motoring costs now include increasingly expensive insurance, higher repair and servicing charges, tyre replacement costs, financing expenses and depreciation. Electric vehicles may reduce fuel expenditure, but they can still involve substantial purchase and repair costs.

Many professional bodies and business groups have argued for some time that the approved mileage allowance rates no longer reflected the true cost of business motoring, particularly for smaller businesses where directors and staff regularly use private vehicles for work related travel.

The recent increase to 55p per mile is therefore a welcome step, but many motorists may feel it does not fully address the cumulative effect of fifteen years of inflation.

Businesses should also remember that mileage claims need to be properly recorded and supported by accurate business mileage logs. Poor record keeping can lead to HMRC challenges and potentially denied claims.

If you would like advice on mileage claims, staff reimbursement policies, company car alternatives or the wider tax implications of business travel, please contact us.