Personal finance expert has explained the new mileage allowance for drivers for work
Martin Lewis has stated that motorists will benefit from a new 55p payment for the first 10,000 miles a year for they do for work. Drivers who use their cars for work-related travel can now claim extra tax relief for the first 10k miles driven during the tax year – a rise of 10p from the previous rate of 45p per mile.
Mr Lewis believes that out of all the changes announced by Chancellor Rachel Reeves, this could be the most ‘important’. This week, Rachel Reeves unveiled a reduction in the VAT rate on tickets for theme parks, zoos and museums from 20% to 5% over the summer holidays.
The Chancellor introduced this measure as part of a package designed to alleviate the impact on living costs resulting from the Iran war.
Other measures announced by Ms Reeves include a 10p per mile increase in tax-free mileage rates backdated to April, a £350 million critical chemicals resilience fund, a £120 million fund to assist the ceramics sector, and the slashing of import tariffs on more than 100 types of food products.
Speaking to BBC listeners, Mr Lewis said: “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, reports the Liverpool Echo.
“To explain to people how this works, if you drive as a part of your work, and the big sector that’s very important on this is care workers who are driving from house to house to house.
“What this mileage allowance does is this 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 like earned money. It’s a special allowance.”
He outlined that an exemption exists – it’s not for people travelling to and from work – but even if the employer doesn’t pay that rate they can reclaim it through tax. He said: “So moving that from 45p to 55p is important. It is also worth noting that even if your employer does not give you the full amount of the mileage allowance, let’s imagine they give you 30p. And the allowance is 55p.
“For amounts that you drive for work, not commuting, not to and from work, this is intra-work travel, intra-day work travel, you can claim that 25p per mile back – tax back on it – because you’d have been paid that in your wages, you’re having to pay it, you can get the tax back in the difference between what they give you and the full allowance. And if they didn’t give you anything, you could claim the full 55p back. And similar applies to people who are self-employed for driving in their work.
“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. I haven’t heard anything about that rate being changed. I also haven’t heard anything about whether they’re changing the rate for people who cycle, because there is an allowance for cycling that you’re allowed to claim too. I’ve just got my team trying to check on that.” In a post on X, Mr Lewis added: “The work mileage allowance for under 10,000 miles will rise by 10p to 55p backdated to April 2026.
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“So this means if you drive for work in your own car (like many care workers for example) you can be given up to 55p a mile tax and NI free. And if you’re not given that level you can claim the tax back on the difference between what you’re given and that amount. So if you’re given 30p per mile. You can reclaim tax paid on your wages for the 25p/mile difference.”
The 45p, now 55p, mileage rate applies to cars and vans, dropping to 25p per mile after 10,000 miles. For motorbikes and bicycles, a set rate of 24p and 20p respectively is in place, regardless of distance travelled. Claims are usually made through HMRC or via your tax return if you file self-assessment.
Trade unions have praised the announcement of a rise in the mileage rate claimed by workers who must use their vehicles for work purposes. Rachel Reeves revealed a 10p per mile boost in tax-free mileage rates backdated to April 2026, rising from the current rate of 45p.
The Chancellor informed MPs: “Having heard from (Labour former minister Jim McMahon) 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.”
Trade unions have been pushing for years for the rate to be lifted. Unison general secretary Andrea Egan said: “This simple measure will provide immediate help for countless frontline workers in public services. Particularly at a time when living costs are going through the roof once again.
“People who need their own cars for work have been left thousands of pounds out of pocket for far too many years. Unison has campaigned hard for this long overdue change. It’s good to know the Chancellor has listened to the concerns of staff penalised by frozen rates.
“There’s still more to do to ensure no-one is losing out and the union will continue to campaign for more over the coming months.”