Budget 2026: changes to travel and subsistence payments

For many employers, the rates used to reimburse employees for business travel have felt increasingly out of step with the actual cost of travelling. The recent Budget starts to address that, with further changes to mileage rates and significant increases to the benchmark scale rates used for subsistence.

The changes are welcome, particularly for employers whose employees travel regularly. They also give finance and payroll teams a good reason to review their existing travel and expenses policies.

This is not simply about paying employees more. The increased rates determine how much can potentially be reimbursed tax-free. They do not change the underlying rules determining whether the journey or expense qualifies in the first place.

What is changing?

The approved mileage allowance payment (AMAP) rate for cars and vans above 10,000 business miles will increase from 25p to 35p from 6 April 2027. The corresponding National Insurance contributions disregard for relevant motoring expenditure will also increase.

From 6 April 2028, the new benchmark scale rates will be £20 where qualifying travel exceeds five hours, £60 where it exceeds 10 hours and £75 where it exceeds 24 hours.

Mileage rates become more generous

The mileage changes build on the increase introduced earlier in 2026. From 6 April 2026, the AMAP rate for the first 10,000 business miles in an employee’s own car or van increased from 45p to 55p. The previous 25p rate continued to apply after 10,000 miles.

The Budget 2026 makes the 55p rate permanent and, from 6 April 2027, increases the rate applying after 10,000 business miles to 35p.

For employers, this is a useful opportunity to look again at mileage policies. AMAP rates are not compulsory reimbursement rates. Employers can choose to pay less, in which case employees may be able to claim mileage allowance relief from HM Revenue & Customs (HMRC) on the shortfall. Where an employer pays more than the approved amount, the excess will generally be taxable.

It is also important to distinguish AMAP rates, which apply where employees use their own cars or vans for business journeys, from the separate rules that apply to fuel reimbursement for company cars.

Most importantly, a higher mileage rate does not change whether the journey itself qualifies. An ordinary commute does not become business travel simply because the tax-free mileage rate has increased.

A much bigger change to subsistence payments

The reform of the benchmark scale rates is arguably more striking.

Benchmark scale rates allow employers to make fixed tax-free payments towards qualifying subsistence costs when employees travel for work, rather than reimbursing the exact cost of each meal, provided the relevant conditions and checking requirements are met.

From 6 April 2028, the benchmark rate will be £20 where qualifying travel exceeds five hours, £60 where it exceeds 10 hours and £75 where it exceeds 24 hours.

These are substantial increases. Employers whose policies are tied directly to HMRC’s benchmark scale rates could therefore see a noticeable increase in travel expenditure.

Unlike the mileage changes, the new rates will not take effect until April 2028. This gives employers time to consider whether they want to adopt the higher rates in full, model the likely cost across their workforce and check whether employment contracts or expense policies automatically link reimbursement to HMRC rates.

Higher rates make the underlying travel rules more important

The Budget changes how much can potentially be reimbursed tax-free. It does not turn mileage or subsistence payments into unconditional allowances.

For mileage, employers still need to identify qualifying business mileage. For subsistence, the payment must still relate to qualifying business travel and satisfy the relevant conditions. Simply being away from home, working a long day or buying a meal does not automatically entitle an employee to a tax-free payment.

This becomes particularly important where employees regularly work from different locations.

Whether a workplace is permanent or temporary depends on the employee’s working arrangements and the nature and pattern of their attendance. Regular attendance at a location can mean that travel there is ordinary commuting rather than qualifying business travel.

The increase in the amounts that can be reimbursed also potentially increases the cost of getting this wrong. If a business makes £20, £60 or £75 subsistence payments where the underlying travel does not qualify, the resulting employment tax exposure could become more significant.

Employers should therefore use the changes as an opportunity to look at both how much they reimburse and when employees are entitled to claim.

Overseas travel is also being simplified

There is a further change for businesses with internationally mobile employees.

The government intends to replace the existing system of more than 200 destination-specific overseas scale rates with a tiered system linked to the updated UK benchmark scale rates from 6 April 2028.

For businesses with significant overseas travel, simplification should make the system easier to administer, particularly where employees travel frequently between jurisdictions.

Further detail is still required before employers can redesign overseas expense policies around the new system, so this is an area to revisit once the secondary legislation and further HMRC guidance are available.

What should employers do now?

There is no need for employers to increase reimbursement simply because the tax-free limits are increasing. The starting point should be to understand how the existing travel and expenses policy interacts with HMRC rates.

Some employers reimburse at the maximum tax-free rate, while others set their own rates. Both approaches can work.

For mileage, employers should consider whether their reimbursement policy will move to the 35p rate above 10,000 business miles from 6 April 2027. Businesses with employees undertaking significant business mileage may want to model the additional cost before deciding.

There is more time in relation to subsistence, with the new rates not taking effect until 6 April 2028. But given the scale of the increases, employers whose policies automatically follow HMRC rates should understand the potential cost well in advance.

More broadly, this is an opportunity to review the policy itself. Are permanent and temporary workplaces being identified correctly? Does the policy clearly distinguish ordinary commuting from business travel? Do employees and approvers understand when claims can be made and what evidence is required? And does payroll know when an expense falls outside the tax exemption?

The increased rates are good news for employees who travel for work and for employers that want to reimburse those costs fairly. But higher rates also make it more important to have a travel and expenses policy that is commercially sensible, easy to administer and aligned with the tax rules.

If you would like to understand how the new mileage or subsistence rates affect your organisation or would like us to review your existing travel and expenses policy ahead of the changes, please contact your usual PKF Francis Clark adviser or our employment tax team.

Written by Tamara Beach and Lani Brown