UK Drivers Face 45p-per-Mile Rule Change as Chancellor Rachel Reeves Hints at Reform
Chancellor Rachel Reeves has strongly hinted at introducing major changes to the mileage rates for company car owners across the United Kingdom. This development comes after Labour Party MP Jim McMahon directly questioned the Chancellor on whether the Government was actively reviewing the tax-free amount that drivers can claim back in expenses for business-related mileage.
Current Mileage Allowance Payment System
The approved mileage allowance payment is designed to cover the comprehensive cost of fuel, insurance, road tax, and general wear and tear on an employee's personal vehicle when it is used for work purposes. HM Revenue and Customs (HMRC) sets a maximum amount that businesses or self-employed individuals can claim per mile without incurring tax liabilities.
Under the existing framework, drivers can currently claim 45p-per-mile tax-free for the first 10,000 miles driven annually. This rate is intended to cover all running costs of a vehicle, including insurance and servicing. After exceeding 10,000 miles, the claimable rate drops to 25p-per-mile. Additionally, an extra 5p-per-mile can be claimed for each passenger transported during business journeys.
Chancellor's Statement on Potential Revisions
In her response, Chancellor Rachel Reeves acknowledged the longstanding nature of the current rates, stating, “Whilst the approved mileage allowance payment rates have not changed since 2011, I recognise that motoring costs have evolved significantly and it’s an important issue for many people who claim motoring expenses.”
She further elaborated, “We’re therefore looking at the issue and will consider the matter further in the usual way as part of a future fiscal event.” This statement signals a potential overhaul of the mileage allowance system, which has remained static for over a decade despite rising motoring expenses.
Employer Obligations and Tax Implications
Financial services provider Mooncard issued a warning regarding the advisory nature of these rates, noting that employers in the UK are not legally obligated to pay a mileage allowance to their employees. However, many employers do choose to incorporate mileage allowance payments into their employee benefits packages as a standard practice.
As long as the payment is equal to or under the HMRC-approved mileage rates, it does not need to be reported to HMRC and is not subject to tax. If an employer pays more than the approved mileage allowance payment, the excess is considered a “personal benefit” to the employee and will be taxed through the Pay As You Earn (PAYE) system.
Any amount above the approved rate must be reported to HMRC and included in the company’s annual tax returns, ensuring compliance with tax regulations. This structure places the onus on businesses to carefully manage their mileage reimbursement policies to avoid unexpected tax liabilities for both the company and its employees.
