Employees who rely on their vehicles for work are set to benefit from an increase in tax-free mileage rates, as announced by Rachel Reeves. The Chancellor has revealed a raise of 10p per mile in tax-free mileage rates, effective from April 2026, up from the current rate of 45p.
This mileage allowance is intended to cover expenses incurred when using a personal vehicle for business purposes, such as caring for individuals at different locations. It does not encompass commuting costs to a regular workplace.
Individuals can seek reimbursement for these expenses directly from their employer or claim tax relief from HMRC. Typically, employees must submit an expense claim to their employer for reimbursement. If the employer pays less than the full rate, the employee can claim tax relief on the shortfall.
The new rate of 55p per mile applies to the first 10,000 miles driven in a tax year in a car or van, decreasing to 25p per mile thereafter. For motorbikes and bicycles, the rates are fixed at 24p and 20p per mile, respectively, regardless of mileage. Different rules apply if an individual has a company car.
The Chancellor stated, “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.” The change has garnered praise, with financial expert Martin Lewis highlighting the significance of the increase from 45p to 55p for the first 10,000 miles driven.
Unison general secretary Andrea Egan lauded the measure, emphasizing its immediate assistance to frontline workers in public services facing rising living costs. The union has advocated for this adjustment to address the financial burden on employees using their cars for work and will continue campaigning for further improvements.