Mileage Rates Rise: What It Means for Self-Employed Drivers

Tax Queen

Tax Expert @ Pie

4 min read

What You Need to Know

If you use your own car or van for work, this change could lower your tax bill from the 2027-28 tax year. On 26 October 2026 the Government announced that the 55p per mile rate for the first 10,000 miles will stay in place permanently. The rate for miles above 10,000 will rise from 25p to 35p from 6 April 2027. [Editor Note: Unverified figure - check against HMRC guidance]

You don't need to change anything on a return right now. It is worth keeping an accurate mileage log from today, because without one you can't back up your claim if HMRC asks. When you're ready to report your figures, our guide on how to file your UK tax return walks you through the steps.

The rates for motorcycles (24p) and bicycles (20p) are not changing. The Treasury expects around 3 million people to benefit.

What This Means for Self-Employed Drivers

As a sole trader, you can use HMRC's simplified expenses for vehicles. Instead of adding up fuel, insurance, servicing and repairs, you multiply your business miles by the flat rate and take that amount off your profits.

From 2027-28, someone driving 15,000 business miles would claim £5,500 for the first 10,000 miles plus £1,750 for the rest, which comes to £7,250. At the current 25p upper rate, the same mileage gives £6,750, so the new rate adds £500 of deductible expenses.

Lower profits mean less Income Tax and National Insurance to pay. If you've already claimed capital allowances on the vehicle (tax relief on the cost of buying it), you usually can't switch to flat rates for that vehicle. Our guide to claiming vehicle expenses on your Self Assessment explains both methods.

Which Rates Apply to Your Next Return

The return due by 31 January 2027 covers 2025-26, which was before the 55p rate began, so the earlier 45p rate applies to those miles. The 55p and 25p rates apply to 2026-27, and the new 35p upper rate starts in 2027-28.

How the Flat Rate Works in Practice

The mileage rate replaces the actual costs of buying and running your vehicle, such as fuel, insurance, repairs and servicing. You can't claim those costs as well. You can still claim parking and other travel, such as train fares, on top of your mileage figure.

A few rules are worth knowing before you choose this method:

You can use it for cars, vans and other goods vehicles, and motorcycles. It doesn't cover cars built for commercial use, such as black cabs or dual-control driving instructor cars.
Once you use the flat rate for a vehicle, you must keep using it for as long as that vehicle is used in your business.
You don't have to use flat rates for every vehicle you own.
Journeys between home and your usual place of work don't count as business miles, and fines or penalty charges can't be claimed.

A Worked Example

Say you're a self-employed plumber who drives 12,000 business miles a year. For 2026-27, your claim is £5,500 for the first 10,000 miles plus £500 for the other 2,000 (at 25p), so £6,000 in total.

Drive the same miles in 2027-28 and the upper band is paid at 35p, so the extra 2,000 miles are worth £700. Your claim rises to £6,200. If you pay the basic rate of Income Tax (20%) and the main rate of Class 4 National Insurance (6%), that extra £200 of expenses cuts your bill by about £52. The more you drive above 10,000 miles, the bigger the saving.

If You're Employed and Use Your Own Car

Your employer can pay you up to the approved rate tax-free for business journeys, which don't include your normal commute. If your employer pays less, you can claim tax relief on the difference, either directly through HMRC or on your Self Assessment return.

Say you drive 6,000 business miles at 55p. The tax-free limit is £3,300. If your employer pays 30p per mile (£1,800), a basic rate taxpayer paying 20% could get back £300 on the £1,500 gap.

Start Your Mileage Log Now

A higher rate only helps if you can prove the miles. For each business trip, note the date, where you started and finished, why you went and how far you drove. Keep this separate from personal driving so your claim holds up.

Pie Tax is self-assessment software that lets sole traders, freelancers and landlords keep business mileage alongside their income and allowable expenses. That way your vehicle claim is worked out and ready under whichever rate applies when you file with HMRC.

Want your miles and costs in one place before the new rates arrive? Try Pie Tax for free.