If you’ve recently filled up your car, you’ll know how quickly business travel costs mount up. Last week’s Budget announced increases to both mileage allowances and subsistence scale rates. These changes are welcome for everyone, as current rates have fallen behind rising food and fuel costs in recent years. What do the new rules mean for you?
At first glance, it all sounds positive. Employees who travel for work can be reimbursed more generously without creating a tax charge, and employers have more flexibility in compensating staff for business travel costs. The same applies to those self-employed who use the rates to reimburse themselves for business travel.
What is Business Mileage?
Remember that Travel to and from home to a permanent workplace, where an employee works on a permanent basis as part of their employment duties, is classed as ordinary commuting and is not claimable.
Anything else, such as visiting customers, suppliers, business meetings, or training sessions, qualifies as business travel.
You also need to make sure that, if you are going to claim business mileage, all claimants keep a robust mileage log. As an employer, you must make sure this is done. If you are self-employed, if HM Revenue (HMRC) looks into your affairs, you will need to provide evidence of your claim.
You can get a sample of a good mileage log here
Mileage Rates: An increase at last
The first piece of good news concerns mileage. Earlier this year, the approved mileage rate for the first 10,000 business miles increased from 45p to 55p per mile. The Budget has now confirmed that this increase is permanent. This rate has been in place for fifteen years, so it was about time.
Further help is also on the way for heavier business users. From 6 April 2027, the approved mileage rate for business mileage above 10,000 miles will increase from 25p to 35p per mile. This rate has been in place for twenty-three years.
The rates were clearly outdated, and revised rates will help a lot of workers.
A Few Important Mileage Rules
If you are an employer, keep a few points in mind before reviewing your mileage claims. Firstly, these are HMRC’s approved rates. They are not mandatory rates.
You can choose to reimburse employees at a lower rate if you wish, and employees may then be able to claim tax relief on the difference. That claim will be lower than what you would reimburse.
Secondly, paying more than the approved rate doesn’t create a bigger tax saving. Quite the opposite. Any excess is generally taxable.
Finally, these rates apply only when employees use their own vehicle for business journeys.
Company cars operate under a completely different set of rules.
Subsistence Rates Receive a Major Boost
While the mileage changes are welcome, the subsistence changes are much bigger and have caught many of us by surprise. Subsistence rates allow employers to make tax-free contributions towards the cost of meals when employees are travelling for work, avoiding the need to collect and process every individual receipt. It’s an easier way to reimburse, but you still need to keep good records, like a mileage log.
From 6 April 2028, the benchmark rates are set to increase substantially.
An employee who qualifies because their business travel exceeds
- five hours will be eligible for up to £20, compared with the current £5.
- The rate for qualifying travel exceeding ten hours jumps from £10 to £60.
- And the allowance for longer periods of business travel increases to £75.
These increases could meaningfully affect travel budgets, particularly for businesses with mobile workforces.
Why SMEs Should Plan Ahead
April 2028 may feel far away, but it will come around soon. You now have plenty of time to assess what the changes could mean in practice.
Now is the perfect time to check exactly how your existing policy is written and decide whether it needs revisions before the new rates arrive.
Businesses with employees working across multiple locations should pay particular attention to the distinction between permanent and temporary workplaces.
As an employee or the self-employed individual, you may genuinely travel between several locations, but if one of those locations becomes a place you attend regularly over time, HMRC may regard it as a permanent workplace.
Once that happens, journeys to that location may become ordinary commuting rather than business travel. With subsistence allowances increasing significantly, any mistakes in this area become more costly.
Overseas Travel Is Becoming Simpler
There is also good news for businesses with employees travelling internationally.
Currently, overseas subsistence rates are notoriously complex, with more than 200 different destination-specific rates applying around the world.
From April 2028, the Government plans to replace this system with a simpler tiered structure linked more closely to the UK benchmark rates. The finer details have not yet been released, so there is no need to update overseas travel policies immediately.
However, businesses that regularly send employees abroad should welcome the prospect of a much simpler system.
Final Thoughts
Overall, these changes are positive. They recognise that business travel costs have increased substantially over the years, and it gives employers the opportunity to reimburse their team fairly. For the employees, it’s a win-win.
However, if you are the employer, remember rates may change, but HMRC’s expectations around qualifying business travel remain firmly in place. You also need to consider the cash flow position of these new rates. We advise you to sit back and consider whether your business can afford the increase.
If you’re unsure whether your current mileage and subsistence policies are still fit for purpose, now is a good time to review them. A quick conversation today could save you confusion and potentially a costly problem later. If this is you, please contact your normal manager.
If you are not working with us yet but would like to, here’s who we are.