UK Raises Tax-Free Mileage Rate to 55p After 15-Year Freeze

After more than 15 years without movement, the UK government has finally increased the tax-free mileage allowance.

Chancellor Rachel Reeves has confirmed that HMRC’s approved mileage rate will rise from 45p to 55p per mile for the first 10,000 business miles travelled in a personal vehicle.

The change is being backdated to April 2026 and marks one of the biggest updates to mileage relief in years.

For workers who regularly use their own cars for work, especially:

• • carers
• • community workers
• • tradespeople
• • mobile consultants
• • sales staff
• • self-employed contractors

the increase could make a noticeable difference.

But despite the positive headlines, reactions have been mixed.

Some see it as long overdue support after years of rising fuel, insurance and vehicle costs. Others argue the increase still falls well short of the real cost of driving.

Either way, it is suddenly one of the most important tax stories affecting ordinary workers.

What Actually Changed?

HMRC’s Approved Mileage Allowance Payments (AMAPs) allow employers to reimburse employees tax-free when they use their own vehicle for business travel.

Until now, the approved rate had been:

• • 45p per mile for the first 10,000 miles
• • 25p per mile after that

That 45p rate had remained frozen since 2011, despite major increases in:

• • fuel prices
• • insurance
• • servicing costs
• • tyres
• • vehicle finance
• • depreciation

Under the new rules, the first-tier rate rises to:

• • 55p per mile

The post-10,000-mile rate currently appears unchanged.

Why This Matters So Much

For people who rarely drive for work, the change may not seem dramatic.

But for workers regularly covering large distances in their own vehicles, it matters massively.

Take someone travelling 8,000 business miles per year.

For sectors like care work, where employees often drive between visits all day, that increase could have a meaningful impact on take-home finances.

Why Critics Say It Still Isn’t Enough

While unions and worker groups welcomed the increase, many argue the real cost of driving has risen far faster than the allowance.

Some industry estimates suggest genuine running costs for modern vehicles now sit closer to:

• • 70p–75p per mile

Especially once you factor in:

• • fuel
• • maintenance
• • depreciation
• • insurance
• • wear and tear

That means some workers may still effectively subsidise their employer’s business travel through their own vehicle costs.

Critics argue the old 45p rate became increasingly unrealistic as inflation surged after 2021.

Why The Freeze Lasted So Long

The mileage allowance became one of those strange parts of the tax system that quietly stopped evolving.

Even as inflation rose sharply, the rate remained unchanged for over a decade.

Part of the reason is that mileage allowances are politically awkward.

Increasing them:

• • helps workers
• • but also reduces tax revenue
• • and potentially encourages car usage at a time when governments are also pushing environmental targets

That tension meant the allowance stayed static while the real-world cost of driving climbed steadily higher.

What About Self-Employed Workers?

This is where things become especially relevant.

Self-employed people using their own vehicle for business often claim mileage relief using HMRC’s approved rates.

That means the new 55p figure could affect:

• • sole traders
• • freelancers
• • CIS subcontractors
• • consultants
• • mobile service providers

For many small businesses, mileage is one of the most frequently missed expense claims.

And because mileage adds up quietly over time, failing to track it properly can mean losing hundreds or even thousands of pounds in legitimate tax relief.

The Hidden Problem: Most People Don’t Track Mileage Properly

This is one of the biggest real-world issues.

A huge number of workers:

• • forget journeys
• • estimate figures later
• • fail to log trips consistently
• • miss short business journeys entirely

That means they often underclaim.

Ironically, people tend to carefully track invoices and income while completely neglecting one of their largest legitimate expense areas.

The result?

They end up paying more tax than necessary.

HMRC’s Rules Still Matter

It is important to understand that not every journey qualifies.

Generally, qualifying business mileage includes travel:

• • between work sites
• • to client locations
• • for temporary business travel

Ordinary commuting usually does not qualify.

HMRC’s rules around permanent workplaces and commuting still apply. Official guidance: gov.uk/tax-relief-for-employees/vehicles-you-use-for-work.

Why This Story Is Bigger Than Mileage

The increase also reflects something wider happening inside the UK tax system.

After years of frozen thresholds and allowances, pressure has been building around areas where official rates no longer reflect economic reality.

Mileage became one of the clearest examples.

The rise to 55p is effectively an admission that the old system had fallen behind modern costs.

That raises bigger questions about:

• • expense reliefs
• • frozen tax thresholds
• • self-employment costs
• • and how quickly HMRC adapts to real-world inflation

What Workers and Businesses Should Do Now

The most important thing right now is preparation.

Businesses should:

• • review mileage reimbursement policies
• • update payroll systems
• • communicate changes to staff

Workers and self-employed people should:

• • track mileage properly
• • keep records consistently
• • understand which journeys qualify
• • avoid estimating retrospectively

Because now that the allowance is higher, accurate mileage tracking becomes even more financially valuable.

Summary

The UK’s tax-free mileage allowance is increasing from 45p to 55p per mile for the first 10,000 business miles, marking the first major rise in more than 15 years.

The change, backdated to April 2026, is expected to help workers and self-employed people dealing with rising vehicle costs.

For some, especially those driving extensively for work, the increase could mean hundreds of pounds in additional tax-free reimbursement each year.

However, critics argue the new rate still falls below the true cost of driving, with many estimates suggesting real vehicle costs are significantly higher.

The announcement also shines a light on a wider issue inside the UK tax system: many allowances and thresholds have struggled to keep pace with inflation and the changing realities of modern work.