Chancellor Rachel Reeves has confirmed a significant change to mileage allowance rates, increasing the tax-free per-mile rate from 45p to 55p for the first 10,000 miles driven for work. The update, backdated to April 2026, marks the first increase in 15 years and is expected to save petrol and diesel drivers up to £120 per year.
Details of the Mileage Rate Increase
The new rate applies to cars and vans used for business journeys, while motorbikes and bicycles remain at flat rates of 24p and 20p per mile respectively. The Treasury estimates that up to two million employees and one million self-employed workers will benefit from the change. Approved Mileage Allowance Payments (AMAP) are limits for reimbursing staff who use their personal vehicles for work-related travel.
Impact on Drivers
Early estimates suggest a worker covering 6,000 business miles per year could save around £120. The Treasury stated the move is intended to ease the cost of living, with Reeves noting the need to keep prices down for households and businesses amid global pressures.
Announcing the policy, Rachel Reeves said: “The war in Iran isn’t our war, but one we will need to respond to, and my priority is keeping prices down for households and businesses. That’s why we’re freezing fuel duty, increasing the mileage rate for the first time in 15 years and slashed VAT temporarily this Summer to help reduce the cost of days out.”
Reaction from Experts
Money Saving Expert Martin Lewis welcomed the change, telling the BBC: “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.”
All other mileage rates remain unchanged, but the Government has indicated they will be reviewed at the next Budget.
