If you work through an umbrella company and use your own car for business travel, there’s some good news worth knowing about. The UK Government has announced an increase to the Approved Mileage Allowance Payment (AMAP) rate, and it could mean more money back in your pocket.

Here’s a straightforward breakdown of what’s changed, what it means for you as an umbrella contractor, and what steps you should take now.

What Are Approved Mileage Allowance Payments (AMAPs)?

Before getting into the change itself, it’s worth quickly clarifying what AMAPs actually are, because the terminology can be a little confusing.

Approved Mileage Allowance Payments (often just called mileage rates or mileage claims) are a set rate paid per mile to reimburse workers who use their own personal vehicle for business purposes. The reimbursement is designed to cover:

• Fuel costs (petrol, diesel, or EV charging)
• Vehicle depreciation
• Road tax
• Maintenance costs
• Insurance

For umbrella contractors, mileage is one of the few expenses available to you. When applicable, it is treated as a chargeable expense: your agency or end client funds the mileage reimbursement, and your umbrella company processes it through your payroll.

It’s important to note that not all driving qualifies. Business mileage typically includes journeys such as travelling to a temporary workplace, visiting clients, attending meetings, or going to a different site. Your regular commute from home to a fixed, permanent place of work does not qualify for mileage claims. However, because umbrella contractors often move between temporary workplaces, travel to those sites can qualify, making this particularly relevant to the way you work.

Other restrictions may also apply depending on your agency, end client, contract terms, or HMRC criteria, so it’s always worth checking the specifics of your situation.

What Has Changed?

The AMAP rate for cars and vans has increased from 45p to 55p per mile for the first 10,000 business miles you travel in the 2026/27 tax year.

This is the first increase in over 15 years. The previous rate had been frozen since 2011, and there had been growing pressure on the government to update it in line with rising fuel, insurance, and overall vehicle running costs.

Although the change was announced in May 2026, the new rate is backdated to 6 April 2026, meaning any eligible business mileage you’ve already clocked up since the start of this tax year could qualify for the higher rate.

The rate for mileage above 10,000 miles in a tax year remains unchanged at 25p per mile.

What Does This Mean for You as an Umbrella Contractor?

In simple terms, this means you can receive a higher tax-free reimbursement for every business mile you cover in your own vehicle, up to 10,000 miles per tax year.

To put it into numbers: if you claimed 100 business miles under the old rate, you would have received £45. Under the new rate, the same 100 miles would give you £55 — a £10 difference.

How this plays out in practice depends on whether your agency or end client agrees to fund the increased rate. Because mileage for umbrella contractors is a chargeable expense that needs to be funded by your agency or end client before it can be processed through your umbrella company’s payroll, there are two possible outcomes:

Scenario 1: Your agency or end client agrees to fund the increase

If your agency or end client agrees to reimburse you at the new 55p rate, your umbrella company can process the higher reimbursement through payroll as part of your chargeable expenses. This is the most straightforward outcome and means you receive the full HMRC-approved amount tax-free.

Scenario 2: Your agency or end client does not increase their rate

Not all agencies or clients will automatically increase their mileage funding, and it’s worth being aware that they are not legally required to do so. If your agency continues to fund mileage at a lower rate, you may still be able to claim tax relief on the difference directly from HMRC through something called Mileage Allowance Relief (MAR).

It’s worth noting, however, that MAR only provides tax relief based on your marginal tax rate. It does not mean HMRC will reimburse you the full outstanding amount in cash. There’s a worked example of how this looks further down in this article.

What About Electric Vehicles?

Yes, the new 55p rate applies to electric vehicles too. If you use an EV for business journeys, you’re entitled to the same AMAP rate as those driving petrol or diesel vehicles. Depending on your EV’s purchase price, depreciation, and running costs, electric vehicles can be a particularly tax-efficient option for business travel.

What Steps Should You Take Now?

Here’s a practical checklist to help you make the most of the updated mileage rate:

1. Check with your agency or end client. Ask whether they will fund mileage reimbursement at the new 55p rate and whether they intend to backdate claims to 6 April 2026. This is the key first step because, without increased funding from your agency or end client, your umbrella company cannot process the higher rate through your payroll.

2. Submit mileage claims correctly through your umbrella company If your agency or end client agrees to the higher rate, make sure you follow your umbrella company’s process for submitting chargeable expenses. When claiming business mileage, you’ll typically need to provide full details of your vehicle, including:

• Make
• Model
• Fuel type
• Engine size
• Registration number

You’ll also usually need to provide VAT receipts for the fuel used every time you submit a mileage claim. The same information will need to be provided for any additional vehicles you use.

3. If your agency won’t increase the rate, explore MAR. If your agency or end client continues to fund mileage at a lower rate, look into claiming Mileage Allowance Relief through HMRC for the difference. You can do this directly via HMRC’s online service.

A Quick Example to Bring It All Together

Say your agency only agrees to fund mileage at 30p per mile. Over 100 business miles, that’s £30 processed through your umbrella payroll. But the HMRC-approved rate is now 55p per mile, meaning you’ve received 25p per mile less than the approved amount.

You could then claim tax relief on that 25p-per-mile gap through MAR. If you’re on the standard 20% tax rate, that would give you a tax saving of £5 on those 100 miles.

It’s not the same as getting the full difference paid out, but it’s still money you’re entitled to claim back, and every bit helps.

Why This Matters for Umbrella Company Contractors

For contractors working through an umbrella company, mileage claims are one of the few genuine tax-efficient expenses available to you, so getting them right matters. Understanding your entitlements is an important part of making sure you’re not leaving money on the table.

The AMAP increase is a meaningful step forward after years of the rate sitting still, while driving costs have continued to rise. Whether your agency funds the full increase or you claim the difference via MAR, it’s worth taking the time to understand where you stand.

If you have any questions about how the updated mileage rate affects your pay, or how to submit mileage claims through SmartWork, don’t hesitate to get in touch with our team. We’re here to help you navigate these kinds of changes and make sure you’re getting what you’re entitled to.

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