Major changes to business mileage and VAT rates were the key announcements for SMEs and steps now need to be taken to ensure systems and payroll processes are updated where required.
The HMRC approved business mileage rates for cars and vans had been frozen at 45p per mile for the first 10,000 miles driven in a tax year since 2011. The rate has been increased and employers can now reimburse up to 55p per mile tax‑free for the first 10,000 miles. After this, the allowance drops to an unchanged 25p per mile, with employees able to claim relief on any shortfall.
For those who need to drive for work, a 10p per mile increase in business mileage rates is helpful relief. The measure has also been backdated to 6 April 2026. Employees and the self-employed will both benefit but, for employers, it is likely to cause a headache as they attempt to implement the retrospective action.
The change is also an additional expense for the many employers who will pass the increase on. Reimbursement up to the level of 55p is not compulsory and some employers may want to hold back on implementing any change at this stage. Where employers continue to pay 45p per mile, employees can claim the difference themselves.
All other mileage rates will remain the same for now but may be reviewed at the next Budget in the autumn.
The other significant measure introduced by the Chancellor was a temporary cut in VAT during the summer holidays.
As part of the Great British Summer Savings scheme, VAT will be cut from 20% to 5% on children’s meals in restaurants and cafes, children’s tickets for concerts, the theatre and cinemas, and family tickets and admission to many attractions including theme parks, fairs, zoos, soft play, nature reserves and museums. The scheme will begin on 25 June and run until 1 September, covering the school holidays across all nations of the UK.
The temporary, targeted scheme aims to help families enjoy days out during the holidays, while also boosting the hospitality and visitor attraction sectors. SMEs operating in this sector will be feeling a great deal of relief about the change but they will need to act quickly to ensure the change is implemented appropriately. Press reports also suggest that the definition of ‘children’s meals’ will be pushed to the limit, with l’escargot and similar dishes being touted as likely additions to the usual mix of fish fingers or sausages and chips!
Additional announcements included a 12-month road tax holiday for HGVs and a cut to duty on red diesel by over a third to support farmers and the rail freight industry. The fuel duty freeze has also again been extended.
To discuss these new measures further, including the implications for your business or employees, contact our tax team.
