HMRC’s advisory fuel rates for company cars have changed from 1 September 2026.
If your business provides company cars or reimburses employees for business mileage, it is important to make sure you are using the correct rates.
There has also been a significant change for employees using their own cars for business journeys, with the approved mileage rate increasing to 55p per mile for the first 10,000 business miles.
At A&C Chartered Accountants, we’ve broken down the latest mileage and fuel rates and what they mean for employers.
What are HMRC advisory fuel rates?
Advisory fuel rates are HMRC’s recommended mileage rates for company cars.
They can be used when:
- an employer reimburses an employee for business travel in their company car
- an employee needs to repay the cost of fuel used for private travel in a company car.
Where the correct rates are used in the appropriate circumstances, there should generally be no taxable profit or benefit for the employee.
It is important to distinguish these rates from the mileage rates available when an employee uses their own personal car for business travel.
HMRC advisory fuel rates from 1 September 2026
The rates depend on the type of fuel and engine size.
| Engine size |
Petrol |
Diesel |
LPG |
| 1400cc or less |
14p |
— |
11p |
| 1600cc or less |
— |
15p |
— |
| 1401cc to 2000cc |
17p |
— |
13p |
| 1601cc to 2000cc |
— |
16p |
— |
| Over 2000cc |
27p |
22p |
20p |
The new rates apply from 1 September 2026.
Employers can continue to use the previous rates for up to one month from the date the new rates apply.
What is the advisory fuel rate for electric company cars?
There are separate advisory electricity rates for fully electric company cars.
From 1 September 2026, the rates are:
Home charging – 7p per business mile
Public charging – 15p per business mile
Having separate rates recognises the difference between the typical cost of charging an electric company car at home and using public charging facilities.
Businesses with electric company cars should therefore make sure their mileage reimbursement procedures distinguish between home and public charging where appropriate.
What rate should you use for a hybrid company car?
Hybrid cars do not use the electric advisory rate.
HMRC says hybrid cars should be treated as either petrol or diesel cars for advisory fuel rate purposes.
The appropriate rate will therefore depend on the vehicle’s fuel type and engine size.
What if an employee uses their own car for business?
Different rules apply when an employee uses their own car or van for business journeys.
For the 2026/27 tax year, the Approved Mileage Allowance Payment rate for cars and vans is:
55p per business mile for the first 10,000 business miles
25p per business mile after 10,000 business miles.
The 55p rate increased from 45p and applies retrospectively from 6 April 2026.
There is also an additional passenger payment of 5p per mile for each fellow employee carried on a qualifying business journey.
What about National Insurance on mileage payments?
There is an important difference between the Income Tax and National Insurance rules.
For Income Tax purposes, the approved mileage rate for cars and vans is 55p for the first 10,000 business miles and 25p thereafter.
For National Insurance purposes, the relevant rate is 55p per business mile, without the 10,000-mile reduction.
Employers should therefore make sure they understand which rules apply when calculating the tax and National Insurance treatment of mileage payments.
Can employees claim tax relief if they receive less than 55p per mile?
Potentially, yes.
An employer does not have to reimburse an employee at the full approved mileage rate.
However, if an employer pays less than the approved amount, the employee may be able to claim Mileage Allowance Relief from HMRC on the difference.
For example, if an employer reimburses an employee at 30p per mile when the applicable approved rate is 55p, the employee may be able to claim tax relief on the 25p per mile difference.
It is tax relief on the difference rather than HMRC simply paying the employee the missing 25p.
Can employers reclaim VAT on mileage payments?
VAT-registered businesses may be able to recover VAT relating to the fuel element of mileage payments.
The advisory fuel rates can be used to determine the fuel element of the mileage payment.
The VAT element is calculated from the relevant fuel amount, and the business will need appropriate VAT evidence to support its claim.
For example, if the relevant advisory fuel rate is 15p per mile, the VAT element at the standard 20% VAT rate would be 2.5p per mile.
Employers should retain appropriate VAT invoices or receipts to support the VAT reclaimed.
Why should employers review their mileage policies?
The changes during 2026 make this a good time for employers to review their existing business mileage arrangements.
Check:
- which employees use company cars
- which employees use their own cars for business
- the mileage rates currently being paid
- whether payroll has been updated for the new rates
- how electric vehicle charging is being reimbursed
- whether appropriate mileage records are being maintained
- whether VAT is being reclaimed correctly.
If your business was still using the previous 45p mileage rate after 6 April 2026, you may also want to review the impact of the retrospective increase to 55p.
Company car or personal car: don’t confuse the two mileage rates
One of the easiest mistakes to make is confusing advisory fuel rates with Approved Mileage Allowance Payments.
They serve different purposes.
Advisory fuel rates are primarily used in connection with fuel costs for company cars.
The 55p and 25p Approved Mileage Allowance Payment rates apply when an employee uses their own car or van for qualifying business journeys.
Using the right rate matters because getting it wrong can have Income Tax, National Insurance and VAT consequences.
Need help with business mileage and company car expenses?
Mileage payments can appear straightforward, but the tax treatment depends on who owns the vehicle, the type of journey and how much the employee is reimbursed.
With changes to both advisory fuel rates and Approved Mileage Allowance Payments during 2026, now is a sensible time for employers to check that their mileage policies are up to date.
A&C Chartered Accountants can help businesses understand the tax treatment of company cars, mileage payments and employee expenses and make sure they are applying the correct HMRC rates.
If you’re unsure which mileage rate your business should be using, contact A&C Chartered Accountants and we can review your current arrangements.
This article is intended as general information only and does not constitute tax advice. Rates and HMRC guidance can change, and the correct treatment will depend on individual circumstances.