The government has extended the temporary 5p/litre fuel duty cut until 31 December 2026 — plus new advisory fuel rates and a haulage tax holiday. Here is what businesses need to know.
On 20 May 2026, the government announced a package of measures to help motorists and businesses manage rising fuel costs linked to the conflict in Iran. The headline measure: the temporary 5p per litre fuel duty cut — first introduced in March 2022 — has been extended until 31 December 2026.
This means fuel duty on petrol and diesel remains at its lowest level for more than 16 years. The government estimates the extension saves the average driver approximately £120 over two years.
In addition to the fuel duty extension, the government announced a 12-month vehicle excise duty (road tax) holiday for haulage vehicles. Qualifying heavy lorries will pay just £1 on renewal. The Treasury estimates this saves a typical HGV operator approximately £600 per vehicle.
HMRC reviews company car advisory fuel rates quarterly. The latest rates apply from 1 June 2026. Use these if you reimburse employees for business travel in a company car:
| Engine Size | Petrol | Diesel | LPG |
|---|---|---|---|
| Up to 1400cc / 1600cc | 13p/mile | 12p/mile | 10p/mile |
| 1401–2000cc / 1601–2000cc | 15p/mile | 14p/mile | 12p/mile |
| Over 2000cc | 23p/mile | 18p/mile | 16p/mile |
For fully electric company cars, the advisory rates from 1 June 2026 are 7p per mile for home charging and 15p per mile for public charging.
If employees or sole traders use their own vehicle for business travel, the approved mileage allowance payment (AMAP) rates are unchanged: 45p per mile for the first 10,000 business miles, then 25p per mile after that. Motorcycles: 24p/mile. Bicycles: 20p/mile.
HMRC has published updated VAT road fuel scale charges for 1 May 2026 to 30 April 2027. If your business is VAT registered and you provide fuel for private use in company cars, you have two options:
For most businesses with moderate private mileage, the scale charge method is simpler and often more cost-effective.
The 5p/litre cut has been extended until 31 December 2026. After that, it will begin to be reversed in stages: the cut will be fully unwound by 1 March 2027.
The approved mileage rates are unchanged: 45p per mile for the first 10,000 business miles, then 25p per mile. Motorcycles are 24p/mile and bicycles are 20p/mile.
Yes, if VAT registered. You can either keep detailed mileage records and reclaim business-only VAT, or use HMRC's fuel scale charges (updated from 1 May 2026) which let you reclaim all VAT in exchange for a flat quarterly charge.
HMRC advisory rates from 1 June 2026: Petrol 13–23p/mile depending on engine size. Diesel 12–18p/mile. Electric 7p/mile (home) or 15p/mile (public charging).
Sole traders who claim actual fuel costs (rather than the flat 45p rate) benefit from lower fuel bills through December 2026. If you use the simplified mileage method, the HMRC rate is unchanged.
We help freelancers, contractors, and limited company directors claim the right fuel and mileage expenses. From £19.99/month.
This article is for general information only and does not constitute tax advice. Please consult a qualified accountant for advice specific to your circumstances.
