Mileage allowance rise 'really important change' for drivers using cars for work says Martin Lewis – here's what the Chancellor has announced
If you need to use your car for work in the UK (not simply just for travelling to or from work) you'll now be able to claim tax relief on 55p per mile for the first 10,000 miles driven in the tax year. This is up 10p from 45p per mile. It comes as the Chancellor Rachel Reeves has today (Thursday 21 May) announced a support package designed to help consumers with rising living costs.
If you drive as part of your work, for example you're a care worker driving from house-to-house, your employer can cover your costs per mile with what's called an 'Approved Mileage Allowance Payment', on which you pay neither tax or National Insurance.
This allowance has been frozen at 45p per mile for the first 10,000 miles driven in each tax year since 2011. But today, during a statement in the House of Commons, Rachel Reeves confirmed it would increase by 10p to 55p per mile; backdated to April 2026.
Martin Lewis: 'This is going to be really quite useful for people'
Instantly reacting to today's announcement on BBC Radio 5 Live with Adrian Chiles, MoneySavingExpert.com (MSE) founder Martin 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.
To explain to people how this works: if you drive (your own car, not a company car) as a part of your work (for example, care workers driving from house to 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. So moving that from 45p to 55p is important.
It is also worth noting, if your employer doesn't give you the full amount of the mileage allowance – let's imagine they give you 30p (and the allowance is 55p) – you can claim tax back on that 25p per mile that you drive as part of your work (not commuting).
[In other words], you can get the tax back on the difference between what your employer gives you and the full allowance. And if they didn't give you anything, you could claim [tax back on] the full 55p.
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.
The uplift will only apply to cars and vans
If you use your own vehicle/s for work, you may be able to claim tax relief on the approved mileage rate. This covers the cost of owning and running your vehicle. You cannot claim separately for things like fuel, electricity, vehicle tax, MOTs or repairs. The rules are different for company cars.
The 45p, now 55p, mileage rate applies to cars and vans and drops to 25p per mile after 10,000 miles per tax year. The rate uplift applies to employees and to self-employed workers and will apply, backdated, from 6 April 2026.
For motorbikes and bicycles it's a flat rate of 24p and 20p respectively, no matter the mileage. You usually claim via HMRC or through your tax return if you complete self-assessment.
Aside from the 10p uplift to cars and vans pre-10,000 miles, all other mileage rates will remain the same and will not change. The Government has said that these rates will be reviewed at the next Budget.
Note: While these changes are applicable UK-wide, Scottish public and healthcare sectors have their own collectively agreed mileage rates. If this applies to you, you should ask your employer if it plans to make any changes.
The Chancellor also announced a whole raft of new other measures
These include:
Cheaper family days out
From 25 June to 1 September 2026, VAT will temporarily be cut from 20% to 5% on:
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Children's restaurant meals;
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Child and family tickets for cinemas, theatres, concerts, shows and exhibitions;
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Child and adult admission tickets for attractions including: amusement parks, fairs, museums, zoos, soft play centres, circuses, adventure parks, nature reserves, wildlife parks and observation decks.
The cut will apply across England, Northern Ireland, Scotland and Wales. The Government says it "expects businesses to pass on VAT savings to customers".
If you've paid in advance for a ticket to an attraction with an admission date between 25 June and 1 September, the business will have the option to refund you the VAT difference, so you might want to get in touch to ask.
Commenting on this on 5 Live, Martin said:
It's good to see them finally doing a retail offering. This is the type of thing I've been telling them for the last couple of years that they need to be doing, actually things that people can see a manifest benefit from.
Some of them, like the 'British Summer Saving Schemes', for consumers at least, are a bit gimmicky. This is a temporary cut in VAT on summer attractions for adults and children – fairs, theme parks, zoos, museums – and some just for kids – cinemas, soft play and restaurants – from 25 June until 1 September.
I mean, look, that will be nice for people. It's a reduction in VAT from 20% to 5%. It will be good for those hospitality industries that are involved in it. And hopefully they'll pass all [of that VAT saving] onto consumers. Then it's win-win.
Other key announcements
The Chancellor also confirmed:
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Free bus travel for children aged five to 15 in England this August. The Government says participation will be voluntary but that it will be working with bus operators and local authorities to deliver the scheme. It added that it expects the majority of services to be included.
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Certain food items – including biscuits, chocolate, dried fruit and nuts – could become cheaper. This is thanks to "targeted cuts" to the taxes that firms pay to import these items (known as 'agri-food tariffs'). The Government says the expected benefit to consumers is "more than £150 million a year".
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Fuel duty will remain frozen (again). This UK-wide tax on petrol and diesel had been set to rise at the end of August 2026, but will now stay at 52.95p a litre until at least December 2026.
Here's Martin's instant reaction to these measures on 5 Live:
You've also got the free bus passes in August for kids, children in England.
The more meaty ones though for me are the confirmation there'll be no rise in fuel duty this year... [Martin then goes on to talk about the mileage allowance changes as outlined above]...
We also heard that they would be trying to reduce food tariffs, I think that's likely to be a small gain in people's pockets, but hopefully primarily beneficial for keeping the rate of inflation down, which is important because it helps keep interest rates down, which helps keep the Government's cost of borrowing down. And then, of course, there's energy too, which we heard mention of.
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