Pay Per Mile Tax UK: Rates, Rules and What to Do Now

The UK's approach to taxing drivers is changing significantly. A pay-per-mile tax for electric vehicles launches in April 2028, charging EVs 3p per mile and PHEVs 1.5p per mile. HMRC approved mileage rates also rose to 55p per mile from April 2026, the first increase in 15 years. Businesses, charities, and transport organisations must update policies now to stay compliant.

Written by Road XS

Published 17 Jul 2026

Updated 18 Jul 2026

The way driving is taxed in the UK is changing. A pay per mile tax is coming for electric vehicles, mileage allowance rates have just seen their biggest increase in 15 years, and businesses face growing pressure to get their mileage policies right.

Whether you run a fleet, manage volunteers, oversee a community transport scheme or simply drive for work, understanding these changes could save money and prevent costly compliance mistakes.

Key Points

A pay per mile tax for electric vehicles launches in April 2028. Called eVED, it will charge EV drivers 3p per mile and PHEV drivers 1.5p per mile, with rates rising in line with inflation from 2029/30. The government confirmed the scheme in July 2026 following a public consultation.

HMRC approved mileage rates increased for the first time in 15 years from 6 April 2026. The car and van rate rose from 45p to 55p per mile for the first 10,000 business miles, then 25p per mile thereafter. All business mileage allowance policies and expense systems should already reflect this change.

Employees under-reimbursed for business mileage can claim Mileage Allowance Relief. Using Form P87 or Self Assessment, workers can reclaim tax on the difference between what they were paid and the approved mileage rate, covering the current year and the four previous tax years.

Mileage rates for electric cars depend on vehicle ownership. Employees using personal EVs for work use the standard 55p AMAP rate. Employees in company EVs follow the Advisory Electric Rate: 7p per mile for home charging, 15p per mile for public charging. Employers should check that company EV mileage rates genuinely cover real-world charging costs.

Transport organisations, councils and charities need to act now. Updating volunteer and staff mileage reimbursement policies to the 55p rate is an immediate compliance requirement. Planning ahead for eVED and rising electric fleet running costs is essential for anyone managing transport budgets into the late 2020s.

What Is Pay Per Mile Tax?

Pay per mile tax, also known as vehicle mileage tax or tax by mile, is a system where drivers pay a charge based on the distance they travel rather than a fixed annual rate. It shifts the cost from ownership to usage, meaning the more you drive, the more you pay.

In the UK, this concept is being introduced for electric vehicles through a scheme called Electric Vehicle Excise Duty (eVED). It is commonly referred to as pay per mile car tax, and it has been the subject of a formal government consultation that concluded in July 2026 (GOV.UK, July 2026).

Why Is Pay Per Mile Tax Being Introduced?

The core driver is the collapse of fuel duty revenue. Fuel duty currently raises £24.4 billion annually, but that figure is falling fast. The Office for Budget Responsibility projects it will drop to 0.1% of GDP by 2050/51 as more drivers switch to electric vehicles (House of Commons Library, CBP-10607).

By 2030, approximately one in five drivers will pay no fuel duty at all. Meanwhile, conventional vehicle drivers still contribute around £480 per year. The government has framed this as a fairness issue, noting that lost fuel duty revenues are equivalent to funding 265 million GP appointments (GOV.UK eVED Consultation).

Tax by mileage for electric vehicles is designed to ensure EV drivers contribute to road maintenance and public services as fuel duty receipts decline.

Pay Per Mile Car Tax UK: The Confirmed Details

The confirmed pay per mile tax UK launch date is 1 April 2028. The scheme is administered by the DVLA and will apply to UK-registered cars only initially, with vans, buses, motorcycles and HGVs excluded from the first phase (GOV.UK eVED).

Recommended:

Tackling Rural Isolation

The confirmed rates are:

Fully electric vehicles: 3p per mile
Plug-in hybrid vehicles (PHEVs): 1.5p per mile
Hydrogen fuel cell vehicles: charged at the EV rate of 3p per mile

These rates are roughly half the equivalent fuel duty rate that petrol and diesel drivers pay, which is approximately 6p per mile. From 2029/30 onwards, rates will be uprated in line with the Consumer Price Index (RAC Drive, 2026).

The tax by mile approach means an EV driver covering 7,400 miles per year (close to the UK average) would pay around £220 annually, while a driver covering 10,000 miles would face approximately £300 per year (The Electric Car Scheme, 2026).

How the Pay Per Mile System Will Work in Practice

Drivers will estimate their annual vehicle mileage during VED renewal and pay upfront or in instalments. Monthly, bi-annual and annual payment options will be available. At the end of the year, actual mileage is reconciled against the estimate, with overpayments carried forward or refunded where the overpayment exceeds £100 (GOV.UK Consultation Response, July 2026).

Following consultation feedback, the government scrapped plans for mandatory additional mileage checks on vehicles under three years old. Drivers now self-report, with reconciliation happening at the first MOT. The government has also confirmed an opt-in telematics option for vehicles registered from 2018 onwards that are equipped with 4G or 5G connectivity, allowing mileage data to be submitted wirelessly. For those who prefer not to use telematics, standard odometer reporting applies.

Fleets and organisations running multiple vehicles will have access to bulk licensing, API connectivity and web interfaces to manage submissions efficiently.

Exemptions From eVED

Drivers who are wholly or partially exempt from standard Vehicle Excise Duty, such as those receiving qualifying disability benefits, also remain exempt from eVED. This is a significant protection for passengers who rely on specialist vehicles and for organisations providing transport to disabled people or those with additional needs (Car Tax Exemptions for Disabled Drivers).

Industry Concerns About Tax on Miles

Not everyone has welcomed pay per mile tax UK plans. The Society of Motor Manufacturers and Traders (SMMT) has criticised eVED as "the wrong measure" at the wrong time, arguing it risks undermining consumer confidence during the UK's switch to zero-emission vehicles. The British Vehicle Rental and Leasing Association echoed this, warning that "you cannot create a smooth switch to electric vehicles by making them more expensive to own" (Auto Express, 2026).

The Office for Budget Responsibility has forecast that eVED could result in approximately 440,000 fewer EV sales over the projection period, though the government argues that wider EV incentives will offset this (House of Commons Library).

UK Fuel Rates Change: What Has Already Happened to HMRC Mileage Rates

Alongside the incoming pay per mile car tax, there has already been a major UK fuel rates change for anyone claiming business mileage. From 6 April 2026, HMRC increased the Approved Mileage Allowance Payment (AMAP) rate for the first time since 2011 (GOV.UK, Mileage and Fuel Rates, updated May 2026).

The new approved mileage rates are:

Vehicle Type	First 10,000 Miles	Over 10,000 Miles
Cars and vans	55p per mile	25p per mile
Motorcycles	24p per mile	24p per mile
Bicycles	20p per mile	20p per mile

The car and van rate increased from 45p per mile to 55p per mile, a 22% jump after a 15-year freeze. An additional 5p per passenger per mile applies when carrying fellow employees on qualifying work journeys (HMRC Mileage Rates 2026/27, Capture Expense).

These are the approved mileage rates for company cars and personal vehicles alike when used for business travel. Employers can reimburse employees at or below this rate without creating a taxable benefit or National Insurance liability.

Mileage Rates for Electric Cars

Mileage rates for electric cars depend on whether the vehicle is owned by the employee or provided by the employer as a company car.

For employees using their own electric vehicle for business travel, the standard approved mileage rates apply: 55p per mile for the first 10,000 business miles, then 25p per mile (Driversnote, HMRC Mileage Rate 2026).

Where an employer provides a company electric vehicle and reimburses the employee for the electricity used, the Advisory Electric Rate (AER) applies instead. From June 2026, the confirmed rates are:

Home charging: 7p per mile
Public charging: 15p per mile

There is an important gap to be aware of here. Home charging rates assume access to low overnight tariffs. Rapid public charging can cost between 75p and 89p per kWh, which can create genuine shortfalls for employees doing significant mileage in company EVs (Hillier Hopkins, HMRC Mileage and Fuel Rates 2026/27). Employers should review their company mileage rates for electric cars to ensure they are not inadvertently leaving employees out of pocket.

Advisory Fuel Rates: June 2026 Update

The Advisory Fuel Rates (AFRs) used when employees drive company-owned petrol or diesel vehicles were also updated from 1 June 2026:

Petrol: 14p to 26p per mile (depending on engine size)
Diesel: 15p to 23p per mile (depending on engine size)
LPG: 11p to 21p per mile (depending on engine size)

These rates apply only to company cars, not personal vehicles. For personal vehicles, the AMAP rate governs mileage claim rates.

Company Car Allowance vs Business Mileage Allowance

Many employers offer a company car allowance rather than a physical vehicle, particularly as more drivers opt for electric cars. The average car allowance UK currently sits between £5,000 and £8,000 per year, though this varies significantly by seniority (The Electric Car Scheme, Car Allowance UK 2026):

Junior and field roles: £3,000 to £5,000
Mid-level professionals: £5,000 to £8,000
Senior management: £8,000 to £12,000
Directors and executives: £10,000 to £15,000 or more

A company car allowance is treated as taxable income, meaning income tax and National Insurance apply on top. Employees receiving a car allowance then claim business mileage allowance separately at the approved HMRC rates for any work journeys made in their own vehicle.

For organisations running community transport services, DRT operations or SEND transport routes, understanding the difference between the company mileage allowance and the approved mileage rates for company cars matters enormously for budgeting and compliance.

Claiming Tax Relief on Mileage: How Mileage Allowance Relief Works

If an employer pays less than the approved mileage rate, or pays nothing at all, employees can claim Mileage Allowance Relief (MAR) to recover the difference from HMRC. This is one of the most commonly missed forms of compensation for mileage in the UK.

For example, if an employee drives 8,000 business miles and their employer reimburses them at 35p per mile, the shortfall against the 55p approved rate is 20p per mile. That equates to £1,600 of unclaimed mileage allowance relief on which the employee may be entitled to tax relief (Driversnote, Mileage Allowance Relief 2026).

To make a mileage tax claim, employees should:

Use Form P87 for claims up to £2,500 that do not require a Self Assessment return
Use the Self Assessment return for mileage expense claims above £2,500 or if already filing
Keep mileage logs recording trip dates, start and end postcodes, distance covered and any amounts already reimbursed

Claims can cover the current tax year plus the four previous tax years, so there is real value in checking past records (GOV.UK, Tax Relief for Employees, Vehicles).

Using a Mileage Allowance Relief Calculator

A mileage allowance relief calculator can help employees quickly establish how much they may be entitled to claim. The basic formula is:

(Approved rate minus employer's rate) x business miles = unclaimed mileage allowance

Then apply the employee's marginal tax rate to the unclaimed amount to calculate the actual tax saving. A 20% taxpayer with £1,600 of unreclaimed mileage allowance would recover £320. A 40% taxpayer in the same position would recover £640.

For drivers, volunteers, carers and NHS staff who regularly use their own vehicles for work, this is a straightforward route to compensation for mileage that is often left on the table (Triplog, HMRC Mileage Allowance Relief Explained 2026).

What This Means for Transport Organisations, Councils and Charities

For community transport operators, home-to-school transport leads, NHS transport coordinators and local government decision makers, these changes land across several pressure points at once.

The shift to approved mileage rates of 55p per mile increases the cost of reimbursing volunteer drivers and staff using personal vehicles. Organisations need to update policies, payroll instructions and expense systems to reflect the new rates from 6 April 2026. Failure to update means employees and volunteers are either under-reimbursed or, if rates are set above 55p, a taxable benefit arises.

Looking ahead to 2028, the eVED pay per mile tax will add a further layer of cost for staff or volunteers driving electric vehicles. While the rate is 3p per mile, high-mileage drivers covering tens of thousands of business miles per year will feel this in their total vehicle mileage costs, particularly if salary sacrifice or fleet arrangements do not absorb the charge.

Boards, trustees, CEOs and councillors making vehicle policy decisions now should factor these trajectories into medium-term planning.

What Petrol and Diesel Drivers Should Know

The pay per mile tax as described above currently applies only to electric and plug-in hybrid vehicles from April 2028. Petrol and diesel drivers continue to pay fuel duty at the pump, which currently equates to approximately 5p to 6p per mile in fuel duty alone (Electric Car Scheme, 2026).

What does change immediately for all drivers is the mileage claim rate. The 55p approved rate should now be used in all business mileage expense claims and reimbursement policies from 6 April 2026 onwards. Business mileage rates and company mileage rates set below this threshold mean employees can claim relief on the shortfall.