Rachel Reeves has confirmed that the work mileage allowance for drivers covering under 10,000 miles annually will increase by 10p to 55p per mile, backdated to April 2026. The Labour Party Chancellor's announcement means that individuals who use their own cars for work purposes, such as care workers and plumbers, can receive up to 55p per mile tax and National Insurance free.
How the Allowance Works
If employers do not provide the full 55p per mile, employees can claim tax relief on the difference between the amount received and the 55p threshold. For example, if an employer pays 30p per mile, the employee can reclaim tax on the 25p per mile difference. This was highlighted by Martin Lewis, founder of Money Saving Expert, on his social media platforms.
Chancellor's Statement
Speaking in the Commons, Ms Reeves stated: "Having heard from my honourable friends the members for Oldham West, Chadderton and Royton and the trade union Unison, I can today announce a 10p per mile increase in tax free mileage rates, backdated to April 2026; benefiting those who need to drive for work, from care workers to plumbers."
She added: "Madam deputy speaker, when a country faces challenges because of higher oil and gas prices, we must ensure that those who benefit from increased prices and volatility pay their fair share. In my first Budget, I extended and increased the Energy Profits Levy. Last year, I announced a new, permanent windfall tax regime on oil and gas price shocks. Last month, I increased the Electricity Generator Levy, alongside further action to weaken the link between high gas prices and electricity prices."
Additional Tax Measures
Ms Reeves also announced specific changes to the taxation of foreign branch profits, targeting oil and gas groups that operate overseas through foreign branches. These groups have structured their tax affairs to pay little or no Corporation Tax on UK energy trading profits, a practice the government aims to end.
