Big Four firm KPMG has developed a new payroll system which it claims could lead to businesses encouraging their employees to make less use of their cars for work purposes.

The firm’s new system - Net Mileage Plan – is designed to calculate reimbursements for business mileage and provides a solution to what it calls a ‘common problem faced by businesses when setting mileage reimbursement rates for employees who take a cash alternative to a company car’.

KPMG said: ‘Unfortunately, opting for a larger fixed cash element can mean that both the employer and the employee lose out financially. And there are some big sums involved. Revenue gains to the Exchequer relating to income tax and NICs on this extra pay have been estimated to be around £360m for 2004/05.’

The firm said its system would help ‘achieve the best of both worlds’ 

According to the firm, the sytem 'enables both employer and employee to enjoy the tax and NIC benefits of mileage allowances, without encouraging additional CO2 emissions. It is designed to use the maximum tax and NIC free mileage payment to reduce the gross taxable cash car allowance, without changing the net amount each employee receives'.