Rachel Reeves has confirmed the work mileage allowance for under 10,000 miles will rise by 10p to 55p and will be backdated to April 2026. The announcement from the Chancellor of the Exchequer means that those who drive for work in their own car (such as care workers) can be given up to 55p a mile tax and National Insurance free.
The update is the first time the rate has been increased since 2011, delivering long-overdue financial relief to frontline workers such as community carers, tradespeople, and mobile engineers.
The change affects your finances differently depending on how your employer currently handles expenses. If your employer pays you the full official HMRC rate, they can now give you 55p per mile entirely tax-free. For someone driving 5,000 work miles, this is an extra £500 per year compared to the old rate.
If your employer pays you less than 55p per mile (e.g. 35p) you do not lose out. You can claim Mileage Allowance Relief from HMRC's Job Expenses page. You will get a tax refund on the 20p difference.
Those who are self-employed or a sole trader can now write off 55p per mile against their business profits on their next self-assessment tax return, reducing their overall tax liability.
The news has been warmly received by many drivers, who have delivered a two-word verdict on the matter, declaring it "about time" the increase was introduced.
One person wrote on Reddit: "It's about time it was updated."
While another agreed: "About time. 15 years it's been stuck at 45p."
Someone else chimed in: "Yeah I say this all the time to clients at work! Nearly 15 years."
While a fourth said: "Great idea. Putting money back into the hands of key workers."
Giving their view, another Redditor wrote: "A sensible change given the increased cost of driving. No increase in the rate for those who drive over 10,000 miles per year though, which seems difficult to justify. Is there any evidence to suggest that those who drive over 10,000 miles per year have access to economies of scale have not been affected by inflation?"
Addressing the House of Commons on Thursday (May 21), 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.
"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."
She went on to say: "Last month, I increased the Electricity Generator Levy, alongside further action to weaken the link between high gas prices and electricity prices.
"Today, I am bringing forward specific changes to the taxation of foreign branch profits; changing how companies are taxed in relation to their overseas activities.
"Currently, some oil and gas groups that operate overseas through foreign branches have structured their tax affairs in a way which ensures they pay little or no Corporation Tax on their UK energy trading profits.
"Currently, some oil and gas groups that operate overseas through foreign branches have structured their tax affairs in a way which ensures they pay little or no Corporation Tax on their UK energy trading profits."
