RSS feedsGovernment tax officials have called for industry views on a potentially radical revamp of vehicle mileage rates for company employees. The move could lead to a major shift in the way the government allows companies to pay drivers who cover business miles in private vehicles and may change the type of cars they drive, sparking a national debate in the industry.
The change centres on so-called approved mileage allowance payments (AMAPs).
AMAPs can be paid to employees who cover business mileage in private cars. They are intended to cover all the business costs of running a vehicle and currently stand at 40 pence per mile for the first 10,000 miles and 25ppm for any further mileage. Companies can pay this to employees free of tax and National Insurance.
Because of the tax-efficient nature of the payments, they are also a key component in many structured employee car ownership schemes, which offer the equivalent of a company car, but with ownership passed to the driver so they don’t incur company car tax.
Under ECO schemes, as much as possible of an employee’s monthly car allowance is paid through AMAPs, to minimise tax losses on traditional salary payments.
Opinion on the current system is deeply divided, with some claiming the allowances are overly-generous, leading to a significant fall in the number of company cars over the past three years and a rise in opt-out drivers.
Others say the rates are actually inadequate and don’t cover the real cost of modern motoring.
Officials from HMRC, following widespread industry consultation, recently revealed their ideas for a completely reworked scheme at a Fleet News’ Risk in Fleet Conference.
HMRC is looking at three options. One is to link the rates to equivalent company car tax bands. The second is to change the system so reimbursement is based on CO2 emissions. The trial option is looking at a mix of the two.
Elizabeth Ward, policy advisor, HM Revenue & Customs, stressed that it was only the structure of the schemes the taxman was currently looking at, not the AMAP rates themselves, although it had provided rates to make workable examples.
Ward told delegates that there could be a fourth option – do nothing – but said the suggested changes were in response to demands for alterations to the rates from fleets.
She added: “We want fleet operators to tell us if they think this works, or if they think it is overcomplicated. You like the simplicity of AMAPs, but you said it was blunt and felt it could come in line with policies such as CO2-based car tax.”
Elizabeth O’Donnell, an HMRC adviser who joined Ward on stage for the debate, revealed that one option had been to just change the rates for drivers in ECO schemes, but this was seen as a very complicated option.
The proposals are part of an ongoing review of company car tax and related rates and taxes that has been undertaken by HMRC, including a review of the effectiveness of carbon dioxide-based company car taxation.
Officials believe they have found a potential link between the AMAP rates and the number of drivers opting out of company car schemes.
When the CO2-based tax was launched, officials had expected the number of company cars to rise, but instead the number has steadily fallen.
Figures revealed last month by the Department for Transport showed the number of company cars on Britain’s roads fell last year, even though there was a 1.4% rise in the total number of vehicles registered.
There are 33,369 million cars, taxis, motorcycles, mopeds, scooters, buses, coaches and commercial vehicles on the roads. But the 2,410,000 company cars on the UK’s roads is a drop of 1% from the 2,434,000 in 2005.
Proposed new rates
Figures used in the scenarios below are for illustrative purposes only. HMRC is asking for comments on the structure, rather than the rates themselves.
Scenario 1
Linking AMAPs to CO2 emissions:
Given the interaction between company cars, ECOS and mileage payments highlighted by the review so far, a possible approach would be to link the AMAP limits to the Company Car Tax lower threshold. An example of how this could work would be:
- 50p per mile for cars within the 15% company car tax band or lower (currently 135g/km) up to 10,000-mile threshold.
- 40p per mile for cars within 16%-25% band (currently 140-185g/km) up to 10,000 miles.
- 25p per mile for cars over the 25% band; all cars with noCO2 emissions and all cars over 10,000 miles.
Scenario 2
Amending the rates and thresholds:
Amend rates and thresholds to better reflect differing needs and costs of drivers using their own cars for business mileage. The following amounts are illustrative only but give an idea of how the current rates could be changed:
One option might be:
- 50 per mile for 1,000 miles.
- 40p per mile for the next 5,000 miles.
- 25p per mile thereafter.
Another might be:
- 50p per mile for 2,000 miles.
- 40p per mile for the next 4,000 miles.
- 20p per mile thereafter.
Scenario 3
Combining the two suggestions for a more composite approach linking both environmental issues and more:
- 55p per mile for cars within the 15% band or lower up to 5,000 miles.
- 40p per mile for cars within 16%-25% band up to 5,000 miles.
- 25p per mile for cars over the 25% band; cars with noCO2 emissions and all cars over 5,000 miles.
