Reeves says she might raise mileage rates for drivers using cars for work

Drivers may be able to claim back more in expenses for mileage, after Rachel Reeves said she was considering increasing the minimum tax-free amount.

The Chancellor said she understood driving costs had risen “significantly” in recent years, as the current rate of 45p-per-mile was last updated 15 years ago.

The Approved Mileage Allowance Payment defines how much employees can be reimbursed tax-free for using their own cars for work.

Drivers can currently claim 45-per-mile tax-free for the first 10,000 miles and is supposed to cover running a vehicle, including insurance and servicing. After that drivers can claim 25p-per-mile. An additional 5p/mile can be claimed for each passenger transported.

Companies may choose to pay their employees more, but it could be subject to income tax.

Ms Reeves’s comments in the House of Commons come after a campaign by trade unions who argue their workers, such as carers, are left out of pocket when driving to see clients.

She told MPs the changes could be made in a future budget or statement.

Ms Reeves said: “Whilst the approved mileage allowance payment rates have not changed since 2011, I recognise that motoring costs have evolved significantly and it’s an important issue for many people who claim motoring expenses.

“We’re therefore looking at the issue and will consider the matter further in the usual way as part of a future fiscal event.”

She had been asked by Labour former minister Jim McMahon whether the change would be made.

He referenced the case of Gemma, who has worked as a social worker for more than 20 years and who was paying more than £1,000 a year to do her job.

Trade union Unison has previously campaigned on the issue. In 2022 it said motoring costs had risen by 39% in the decade since the 45p rate was introduced.

Get a free fractional share worth up to £100.
Capital at risk.

Terms and conditions apply.

Go to website

ADVERTISEMENT

The RAC Foundation said in 2023 that workers who use their car for work are on average £6,000 a year out of pocket due to the outdated rates.

Mr McMahon said: “I welcome it and so will millions of working people.

“The 45p a mile rate set 15 years ago is nowhere near the true costs of running a vehicle today, recently assessed at 67p a mile, that was before fuel costs rocketed in the last week.

“Working people like Gemma and millions like her will welcome the Chancellor’s statement today, but can I ask that the work is expedited given the cost-of-living crisis?”

Ms Reeves said: “We’ve got a standard Treasury policy of keeping all taxes under review ahead of fiscal events, but this is one area I will be keeping a very close interest in.”

Responding to the announcement, Unison’s assistant general secretary Jon Richards said: “Frozen mileage rates have shifted a heavy financial burden to workers for simply going about their jobs.

“Out-of-date rates are effectively a clumsy stealth tax caused by political inaction, at a time when workers are struggling with soaring cost-of-living pressures.

“People on the frontline in essential public services who have to use their own cars for work are thousands of pounds out of pocket.

“An increase in the rate is long overdue and urgently needed, so workers aren’t subsidising employers from their own pockets.

“It’s good the Chancellor is listening and has taken the issue on board.”