Recent Government announcements have brought some welcome news for businesses and individuals who rely on vehicles for work.
The key changes relate to fuel duty, red diesel, HGV Vehicle Excise Duty and mileage allowance rates. For businesses in transport, logistics, agriculture, construction and trade sectors, these changes could have a practical impact on costs, payroll and tax claims.
Mileage allowance increases to 55p per mile
One of the most notable changes is the increase to the approved mileage allowance rate for cars and vans.
From 6 April 2026, the rate for the first 10,000 business miles in the tax year has increased from 45p to 55p per mile. The rate for business miles over 10,000 remains unchanged at 25p per mile.
This is a significant change, as the previous 45p rate had been in place since 2011.
For employees who use their own car or van for business journeys, this increase may be welcomed – particularly given the rising cost of fuel, insurance and general vehicle running costs.
However, it’s important to note that employers are not required to increase the mileage rate they pay. The approved HMRC rate sets the amount that can usually be paid tax-free, but it remains the employer’s choice whether to reimburse at that level.
What employers should consider
Employers who reimburse staff for business mileage may now wish to review their current policy. If your business currently pays 45p per mile, you may decide to increase this to 55p per mile for the first 10,000 business miles. Alternatively, you may choose to keep your existing rate in place.
Where mileage has already been processed for April or May 2026, employers may also need to consider whether any payroll adjustments are required. This may be particularly relevant where employees were reimbursed above the old HMRC rate and tax or National Insurance was applied.
This is not automatic, so employers should take advice before making changes or re-running payrolls.
What employees should know
Employees who are reimbursed at less than the HMRC approved mileage rate may be able to claim tax relief on the difference.
For example, if an employer pays 45p per mile but the approved rate is now 55p per mile for the first 10,000 business miles, the employee may be able to claim tax relief on the 10p difference.
This claim would usually need to be made directly to HMRC by the employee.
What this means for self-employed clients
Self-employed individuals who use the simplified mileage method may also be able to use the new rates when preparing their 2026/27 tax return.
The new rate of 55p per mile applies to the first 10,000 business miles for cars and vans, with 25p per mile continuing to apply above that level.
Good record-keeping remains essential. Business mileage should be recorded clearly, including the date, purpose of the journey, destination and number of miles travelled.
Fuel duty cut extended
The temporary 5p per litre fuel duty cut has also been extended until 31 December 2026.
This means the main fuel duty rate will remain at 52.95p per litre for the time being, and planned increases later in 2026 will not go ahead.
For businesses with significant fuel costs, such as transport, logistics, mobile trades and delivery businesses, this may help keep costs lower than previously expected.
It may also be worth reviewing budgets and cash flow forecasts, particularly if fuel costs make up a large part of your overheads.
Red diesel duty reduced
There is also a temporary reduction in the duty rate for red diesel.
From 15 June 2026 to 31 December 2026, the red diesel duty rate will reduce from 10.18p to 6.48p per litre.
This will be particularly relevant for businesses in sectors such as agriculture, construction and certain industrial operations where red diesel is used in qualifying machinery or equipment.
For agricultural businesses in particular, this could provide some short-term relief at a time when operating costs remain under pressure.
HGV Vehicle Excise Duty reduced to £1
Another measure announced is a reduction in HGV Vehicle Excise Duty renewal costs.
For the next 12 months, HGV VED renewal will be reduced to £1.
This could represent a meaningful saving for haulage and transport businesses, particularly those operating multiple vehicles.
Businesses in this sector should factor this into their cost planning and may wish to review vehicle renewal dates to understand when the saving will apply.
What should businesses do now?
These changes are generally positive, but they also create some practical points to review.
Employers should consider whether they want to increase mileage reimbursement rates and whether any payroll corrections are needed for mileage already paid since 6 April 2026.
Employees who are paid below the HMRC approved mileage rate may wish to consider whether they can claim tax relief from HMRC.
Self-employed individuals should ensure their mileage records are up to date so the correct rates can be applied when preparing their 2026/27 tax return.
Businesses with high fuel usage should also review forecasts and budgets to reflect the extension of the fuel duty cut and, where relevant, the temporary reduction in red diesel duty.
As always, the impact will depend on your circumstances. If you are unsure how these changes affect you or your business, please get in touch with the SeavorChartered team.
