Chancellor Rachel Reeves has confirmed a new 55p per mile rule for drivers who use their cars for work, just ahead of her anticipated replacement when Andy Burnham becomes Prime Minister. The increase from 45p to 55p per mile applies to the first 10,000 miles driven in the tax year and is backdated to April 2026.
Details of the Mileage Allowance Increase
The mileage allowance, officially known as the Approved Mileage Allowance Payment (AMAP), allows employees who use their own cars for work (not commuting) to receive tax-free payments from their employers. The rate had been frozen at 45p since 2011, but the new 55p rate marks a significant rise.
Martin Lewis, founder of MoneySavingExpert, praised the change, saying: "The big one that I think is going to be under-covered, but is actually really important, is the increase in the mileage allowance for people who drive as part of their work. This has been frozen at 45p since, I think 2011, so the increase from 45p to 55p for the first 10,000 miles that you drive is really important."
How the Tax Relief Works
Lewis explained the mechanics: "If you drive your own car as part of your work (for example, care workers driving from house to house), this mileage allowance is the amount that your employer can give you to cover your costs, and you don't pay tax and National Insurance on it. So it doesn't count as earned money. It's a special allowance."
If an employer pays less than the full allowance, employees can claim tax relief on the difference. For instance, if an employer pays 30p per mile, the employee can claim tax back on the remaining 25p per mile. If no allowance is paid, tax relief can be claimed on the full 55p per mile. Self-employed individuals can also claim the allowance for work-related driving.
Context and Political Implications
Rachel Reeves is widely expected to be replaced as Chancellor when Andy Burnham becomes Prime Minister. This announcement comes as part of her final policy moves. The increase is backdated to April 2026, providing immediate benefit to drivers who have already incurred mileage since then.
Lewis noted: "This has long been a complaint I've got, so I think the change from 45p a mile to 55p a mile backdated to April 2026, so backdated a couple of months, is really going to be quite useful for people. It's only for the first 10,000 miles, there's a lower rate after that."
The lower rate for miles beyond 10,000 remains at 25p per mile, unchanged from previous rules.
