Author: Amir Rafiei

A 10p rise, now on the statute book — from 6 April 2026 the approved mileage rate for cars and vans increases from 45p to 55p per mile for the first 10,000 business miles, the first change since 2011, and it is backdated to the start of the tax year. As chartered certified accountants in Surrey advising sole traders, company directors and employers across the UK, TaxDigit explains what section 2 of the Taxation (Energy and Vehicles) Act 2026 actually changed, what it deliberately left alone, and what needs correcting before the year end.

What Approved Mileage Rates Are — and Why They Matter

Two separate regimes run off the same figure. For employees and directors, sections 229 to 232 of the Income Tax (Earnings and Pensions) Act 2003 set an approved amount for Approved Mileage Allowance Payments. Reimburse a business journey at or below that amount and the payment is free of income tax and National Insurance and needs no P11D entry. Pay above it and the excess is earnings.

For the self-employed, section 94F of the Income Tax (Trading and Other Income) Act 2005 provides simplified mileage expenses: a flat deduction per business mile instead of apportioning fuel, insurance, servicing, repairs and capital allowances between business and private use.

Because both regimes are pegged to the same pence-per-mile number, a single amendment moves the tax position of around three million drivers at once. That number had stood at 45p since 2011/12, while the running costs it approximates had not.

What Changes From 6 April 2026

• Cars and vans, first 10,000 business miles in the tax year: 45p rises to 55p per mile.
• Cars and vans, every business mile above 10,000: unchanged at 25p.
• The same 55p and 25p figures apply to self-employed simplified mileage expenses.
• The change is made by section 2 of the Taxation (Energy and Vehicles) Act 2026 (c. 26), which received Royal Assent on 15 July 2026. It substitutes “55p” for “45p” in ITEPA 2003 s.230(2) and in ITTOIA 2005 s.94F(2) and (3).
• Section 2(3) gives the amendment effect for the tax year 2026-27 and subsequent tax years — so it bites on journeys made from 6 April 2026, three months before the Act was passed.

The measure was announced in May 2026 as part of the Government’s Great British Summer Savings package. On HMRC’s own figures, an employee driving 6,000 business miles a year is roughly £120 better off. A driver reaching the full 10,000 miles gains £1,000 of additional tax-free reimbursement or deductible expense.

The Catch — What Did Not Change

The Act does one thing to mileage: it swaps a number. Everything around that number stands, and this is where the planning points sit.

The 25p rate above 10,000 miles is untouched, so the drop after the 10,000th mile is now 30p rather than 20p. High-mileage drivers take the full uplift on the first tranche and nothing beyond it, which makes accurate mileage logs and a correct split between business and commuting journeys more valuable than before, not less. Motorcycles remain at 24p, bicycles at 20p and the passenger supplement at 5p per passenger per business mile; none were amended.

Most importantly, 55p is a ceiling, not an entitlement. Nothing obliges an employer to pay it. Where an employer reimburses below the approved amount — including any employer still paying 45p — the employee can claim Mileage Allowance Relief on the shortfall, worth £200 to a basic-rate taxpayer covering 10,000 miles at 45p, or £400 at the higher rate.

Who Benefits — and Who Should Still Pay Attention

The clearest winners are self-employed traders using simplified expenses and owner-managers who reimburse themselves from their own company: the extra 10p is a straight increase in a tax-free extraction route carrying no National Insurance and no benefit-in-kind charge.

Employers who have already processed claims since 6 April need to look backwards. HMRC confirmed in Agent Update 143 that employers who reimbursed above the old rates, and deducted income tax and National Insurance on the excess, may need to re-run April and May payroll. Anyone still paying 45p is under-reimbursing against the new approved amount and should decide whether to top up or leave staff to claim the relief themselves.

What Drivers and Employers Should Do Now

• Update expense policies, mileage claim forms and any expense software to 55p and 25p, effective for journeys from 6 April 2026.
• Review every mileage payment made since 6 April, identify shortfalls against the new approved amount, and settle them — re-running April and May payroll where tax or NIC was deducted in error.
• Check the 10,000-mile counter for each employee: the rate falls to 25p on the 10,001st mile, and the counter resets on 6 April, not on 1 January.
• Self-employed clients should apply 55p and 25p in the 2026/27 return, due 31 October 2027 on paper or 31 January 2028 online, remembering that simplified mileage cannot be used for a vehicle on which capital allowances have been claimed.
• Keep a contemporaneous mileage log recording date, journey, purpose and miles. The rate change makes the record worth more, and HMRC still disallows undocumented claims.

Frequently Asked Questions

Is my employer obliged to pay 55p per mile?

No. The approved amount is the maximum that can be paid free of tax and National Insurance, not a statutory minimum. If your employer pays less, you can claim Mileage Allowance Relief on the difference through your tax return or a P87 claim.

Does the increase apply to journeys before the Act received Royal Assent?

Yes. Section 2(3) applies the amendment to the whole of 2026-27, so every qualifying business journey from 6 April 2026 onwards is covered, even though the Act was not passed until 15 July 2026.

Did the rate above 10,000 miles go up as well?

No. It stays at 25p per mile. Only the first-10,000-mile rate for cars and vans was amended, and the motorcycle, bicycle and passenger rates are unchanged.

Can I use 55p if I have claimed capital allowances on the car?

Not as a self-employed trader. Simplified mileage expenses and capital allowances on the same vehicle are mutually exclusive, and the choice made for a vehicle must be kept for as long as that vehicle is used in the business.

How TaxDigit Can Help

TaxDigit advises on personal tax and self assessment, alongside tax advisory and planning and day-to-day bookkeeping for owner-managed businesses. We can recalculate mileage claims from 6 April 2026, quantify the underpayment on claims already processed at 45p, decide whether a payroll re-run or a Mileage Allowance Relief claim is the cleaner route, and check that simplified expenses still beat actual costs and capital allowances. The amending provision is at section 2 of the Taxation (Energy and Vehicles) Act 2026 on legislation.gov.uk.

Plan Ahead With TaxDigit

If you or your staff drive for business, the backdated increase is worth reviewing before the next payroll run rather than at the year end. Call 01483 230 777, email info@taxdigit.co.uk or book a consultation with our team in Guildford, Surrey.

There is no comprehensive double taxation agreement between the United Kingdom and Iran. HMRC says so plainly in its own Double Taxation Relief manual, and Iran is one of very few significant economies where that remains true. TaxDigit are chartered certified accountants in Guildford, Surrey, advising Farsi-speaking clients across the UK, and this is the single most misunderstood point we deal with. This article explains what you get instead of treaty relief, why your nationality can decide whether you receive a UK personal allowance at all, and what the four-year regime for new arrivals is really worth.

What “No Treaty” Actually Means

GOV.UK does list an entry for Iran in its tax treaties collection, which misleads a great many people who go looking. The only document behind that entry is the UK–Iran Air Transport Agreement of 1960 (SI 1960/2419), in force since 9 April 1960 and having effect from 1 January 1957. It deals with the profits of air transport undertakings and nothing else, and HMRC’s guidance confirms it does not provide for tax credit.

The practical consequences are these. There is no treaty article allocating taxing rights between the two countries. There are no reduced rates of withholding tax on Iranian dividends, interest or royalties. There is no residence tie-breaker to resolve a case where both countries treat you as resident. And there is no non-discrimination article. Everything falls back on UK domestic law.

Unilateral Relief Is What You Get Instead

UK domestic law does not leave you exposed to full double taxation. Part 2 of the Taxation (International and Other Provisions) Act 2010 provides unilateral relief: where you have paid Iranian tax on income or gains arising in Iran, you can credit that tax against the UK tax on the same income. The credit is capped at the UK tax due on that income, so if the Iranian rate is higher than the UK rate the excess is simply lost — there is no refund and, without a treaty, no mutual agreement procedure to argue about it.

Where a credit is worth little — for example because the UK tax on that slice of income is nil — the alternative is relief by deduction: treating the foreign tax as an expense and taxing only the net amount. It is often the better answer for smaller amounts of Iranian rental income, and it is a choice, not an automatic default. Whichever route you take, keep the Iranian assessment or withholding evidence. HMRC asks for it, and reconstructing it years later from Tehran is not a pleasant exercise.

The Personal Allowance Trap for Non‑Residents

This is where the absence of a treaty bites hardest, and it catches people out constantly.

If you are UK resident, your nationality is irrelevant — you get the personal allowance (£12,570 for 2026/27) like anyone else. If you are non‑resident, though, you only get it if you fall into one of the categories listed in section 56 of the Income Tax Act 2007. Those categories include British citizens and nationals of EEA states. They also include anyone entitled to it under a double taxation agreement — and that is precisely the route that does not exist for Iran.

So a non‑resident Iranian national who does not also hold British or EEA citizenship, and who does not fall into another listed category, has no entitlement to the UK personal allowance at all. Every pound of UK rental profit is taxable from the first pound. Many of our clients are dual British–Iranian nationals and are unaffected; those who are not should assume the allowance is unavailable until it is checked. Non‑residents who are entitled claim it after the end of the tax year on form R43.

The Four‑Year FIG Regime — and What It Costs You

The remittance basis was abolished for all UK residents from 6 April 2025 and replaced by the four‑year Foreign Income and Gains regime. The eligibility test is refreshingly simple: you must be UK resident, within your first four years of UK residence, following at least ten consecutive tax years of non‑residence. Nationality and domicile are irrelevant, and so is whether you could ever have used the remittance basis.

Claimed successfully, it takes qualifying foreign income and gains — Iranian rental profits, Iranian dividends and interest, qualifying foreign gains — out of UK tax for that year. But it is claimed year by year, and it is not free. For any year you claim it you forfeit the personal allowance and the capital gains annual exempt amount (£3,000 for 2026/27), along with the married couple’s and blind person’s allowances. Foreign employment earnings are outside the regime altogether; those are dealt with under Overseas Workday Relief, which for FIG claimants is capped at the lower of £300,000 or 30% of qualifying employment income.

The arithmetic therefore turns on how much foreign income you actually have. For a client with modest Iranian rental income, giving up the personal allowance can cost more than the relief saves. It is a calculation, not a default.

One Deadline Worth Marking

If you were previously taxed on the remittance basis and still hold unremitted pre‑6 April 2025 foreign income and gains, the Temporary Repatriation Facility lets you designate those amounts and bring them into the UK at a flat rate. The rate is 12% for 2025/26 and 2026/27, rising to 15% for 2027/28, after which the facility closes for good. The designation for 2026/27 is made through your Self Assessment return.

2026/27 is the last year at 12%. If this applies to you, it is the most time‑sensitive decision on this page.

What Iranian Clients Should Do Now

• Establish your UK residence position under the Statutory Residence Test before assuming anything — it counts days and ties, and it takes no notice of your visa.
• If you are non‑resident and not a British or EEA national, check your personal allowance position rather than assuming it applies.
• Gather evidence of any Iranian tax paid, and keep it. Without it, a foreign tax credit claim is difficult to sustain.
• If you arrived in the UK within the last four years after a decade abroad, model the FIG regime properly against the allowances it costs you.
• If you hold unremitted pre‑April 2025 foreign income, decide on the Temporary Repatriation Facility before the 12% rate becomes 15%.

Frequently Asked Questions

Is there a tax treaty between the UK and Iran?

Not a comprehensive one. HMRC confirms there is no comprehensive double taxation agreement between the UK and Iran. The only instrument is the 1960 Air Transport Agreement, covering the profits of air transport undertakings, which does not provide for tax credit relief.

Will I be taxed twice on my Iranian rental income?

Not usually. Unilateral relief under TIOPA 2010 lets you credit Iranian tax paid against the UK tax on the same income, capped at the UK tax due. Where a credit is worth little, relief by deduction may give a better result. You need evidence of the Iranian tax paid either way.

Do Iranian citizens get the UK personal allowance?

If you are UK resident, yes — nationality does not matter. If you are non‑resident, you only qualify through one of the categories in section 56 ITA 2007, such as British citizenship or EEA nationality, or through a double taxation agreement. Because there is no UK–Iran agreement, a non‑resident Iranian national without another qualifying status is not entitled to it.

I moved to the UK last year. Should I claim the FIG regime?

Only if the maths works. It removes qualifying foreign income and gains from UK tax for up to four years, but each year you claim it you lose your personal allowance and your capital gains annual exempt amount. With modest foreign income the allowances are often worth more than the relief.

How TaxDigit Can Help

We advise Farsi‑speaking clients on exactly these questions every week: residence and split‑year positions, foreign tax credit claims, whether the FIG regime is worth claiming, and how Iranian property and business interests sit alongside a UK return. You can find more on our international and expat tax, personal tax and non‑resident landlord pages, and Farsi‑speaking support through our Iranian accountant in London service. HMRC’s own confirmation of the position is in its Double Taxation Relief manual at DT9750.

Everything can be discussed in Farsi. All filings and HMRC correspondence are handled in English by the same team, so nothing is lost between the two.

Plan Ahead With TaxDigit

If you have income, property or a business in Iran and you are living in the UK — or you are about to move — the order in which you do things in your first UK tax year matters a great deal. It is far easier to plan it in advance than to unpick it after a return has been filed. Call 01483 230 777, email info@taxdigit.co.uk, or use our contact page to arrange a conversation.

This article reflects the position as at 2 August 2026 and describes UK tax rules of general application. It is not advice for your circumstances.