Key takeaways
- The AMAP rate increase to 55p presents an opportunity to enhance tax-efficient employee reimbursements.
- Employers increasing rates to 55p may incur additional NIC costs unless rules are aligned.
- Maintaining lower rates may preserve NIC efficiency but shifts the burden to employees via tax relief claims.
- There is a significant opportunity to review car allowance arrangements and identify historic NIC reclaims.
- Employers should act now to ensure policies are both compliant and cost-efficient.
What is the background?
On 21 May 2026, the Government announced an increase to the Approved Mileage Allowance Payments (AMAP) rates for employees using their own vehicles for business travel. The rate for cars and vans has increased from 45p to 55p per mile for the first 10,000 business miles, with the 25p rate thereafter unchanged. This change is effective from 6 April 2026 and is expected to be legislated retrospectively.
What is the issue?
While the increase is welcome, it creates practical and technical challenges for employers. Employers can now reimburse employees up to the revised AMAP rates without triggering an income tax charge. However, misalignment between income tax and NIC rules means that unless the NIC rules are also changed, payments above 45p may still attract NIC, creating additional costs.
This also highlights an important planning opportunity: where employees receive car allowances and are under-reimbursed for mileage, employers may be able to secure significant NIC reclaims.
What do employers need to do now?
Employers should immediately review mileage policies and decide whether to increase rates to 55p or retain existing rates. A careful cost-benefit analysis is required to balance employee expectations against potential NIC exposure.
Employers should also review historic car allowance arrangements to identify opportunities for NIC reclaims, which could result in substantial cash recoveries.
Early action is critical to maximise savings and ensure compliance with evolving legislation.
Worked examples
Example 1: An employee drives 8,000 business miles and is reimbursed at 55p. The total £4,400 is tax-free, but £800 may be subject to NIC if the 45p benchmark remains.
Example 2: An employee is reimbursed at 45p. The payment is tax-free, but the employee can claim tax relief on the £800 shortfall.
Example 3: An employee with a £6,000 car allowance and mileage paid at 30p may generate a NIC reclaim opportunity of up to £2,500 when compared to a 55p benchmark.
How can UNW help?
UNW’s Employment Tax specialists can help you turn this change into an opportunity. We will work with you to design an optimal mileage strategy, quantify NIC exposure, and identify reclaim opportunities.
Our team can deliver end-to-end support – from technical analysis and policy redesign to calculating and submitting NIC reclaim claims to HMRC – ensuring you maximise savings while remaining fully compliant.
If you would like to discuss how we can help you, or have any other employment taxes related queries, please get in touch with us at employmenttaxesteam@unw.co.uk
