Business mileage – “double whammy” for private car drivers
Following massive increases in the cost of fuel - the average price of petrol has now hit 118.6p while diesel is 131.9p - the Government has raised their “Fuel Advisory Rates” to compensate, but, says West country accountants and financial advisers, Old Mill, for some employees, it simply isn’t enough.
From July 1 2008, Fuel Advisory Rates for company provided petrol vehicles with an engine size of 1400cc or less will go up 1p to 12p, for diesel, the rise is 2p up to 13p. For vehicles with engine sizes up to 2000cc, the rise is 2p for both petrol and diesel, going up to 15p and 13p respectively. And for larger vehicles, petrol reimbursement has gone up from 19p to 21p and diesel from 14p to 17p. (See table below for full rate information).
But, for those who drive their own cars, the AMAP (Approved Mileage Allowance Payments) hasn’t changed, in fact, at 40p for each business mile up to 10,000 and 25p for each over 10,000, it has remained static since 2002.
Despite the fact that evidence from both the RAC and the AA suggest that the true cost of private mileage is now 50p, and many groups are actively lobbying the Government for a long overdue increase, HMRC says its research shows that no changes are necessary in the foreseeable future, and this says Andrew Wholey, tax consultant at Old Mill Financial Services, means that employees undertaking business mileage in a private vehicle are losing out.
“Due to the fact that Government has refused to raise the AMAP, many employees undertaking business mileage in their private car incur actual costs in excess of the rate at which they can be reimbursed by their employer,” said Mr Wholey.
“While employees who drive company owned vehicles have seen regular increases over the years - 50 per cent since 2002 - it is an entirely different story for employees who do not benefit from the use of a company car and have to pay all their own running costs - not just fuel, but tax, insurance, depreciation and any other costs associated with running a car.
“This group are really losing out due to the fact that the AMAP - which is supposed to take all the costs of running a car into account - has not seen an increase in six years, despite the fact that in that time, the cost of fuel has risen from 74p a litre in June 2002 to 118p a litre now.”
And, says Mr Wholey, this situation is made worse still where instead of adopting the AMAP, employers use the lower Fuel Advisory Rates for reimbursing the cost of fuel and business mileage undertaken in an employee’s private car. Employers too, are trying to contain costs and this practice is increasingly common.
“In this situation,” he explains, “it is left to the employee to claim a tax deduction on their personal tax return equal to the difference between the two contrasting rates.
“This can be a daunting prospect for some, and many simply don’t bother. But they should, because, for a higher rate tax payer undertaking 6,000 business miles, the difference between the 40p AMAP and the 15p Fuel Advisory Rate is 25p per mile - an annual tax save of £600.”
Although, says Mr Wholey, an increase in the AMAP is long overdue, in the meantime he advises employees who drive their own vehicles that are only being reimbursed using the lower Fuel Advisory Rates (or another rate, lower than the AMAP) to at least ensure that they benefit from the additional tax relief they may be entitled to.
“Claiming back the difference between the Fuel Advisory Rate and the AMAP isn’t as complicated as they may think and in this way they can mitigate the impact of a “double whammy” as the costs of fuel continue to escalate,” he said.
Ends
| Current Rates | |||
| Engine size | Petrol | Diesel | LPG |
| 1400cc or less | 12p | 13p | 7p |
| 1401cc to 2000cc | 15p | 13p | 9p |
| Over 2000cc | 21p | 17p | 13p |
Previous Rates
| Period from 1 August to 31 December 2007 | |||
| Engine size | Petrol | Diesel | LPG |
| 1400cc or less | 10p | 10p | 6p |
| 1401cc to 2000cc | 13p | 10p | 8p |
| Over 2000cc | 18p | 13p | 10p |
| Period from 1 February 2007 to 31 July 2007 | |||
| Engine size | Petrol | Diesel | LPG |
| 1400cc or less | 9p | 9p | 6p |
| 1401cc to 2000cc | 11p | 9p | 7p |
| Over 2000cc | 16p | 12p | 10p |
| Period from 1 July 2006 to 31 January 2007 | |||
| Engine size | Petrol | Diesel | LPG |
| 1400cc or less | 11p | 10p | 7p |
| 1401cc to 2000cc | 13p | 10p | 8p |
| Over 2000cc | 18p | 14p | 11p |
| Period from 1 July 2005 to 30 June 2006 | |||
| Engine size | Petrol | Diesel | LPG |
| 1400cc or less | 10p | 9p | 7p |
| 1401cc to 2000cc | 12p | 9p | 8p |
| Over 2000cc | 16p | 13p | 10p |