Fleet: passenger allowance

For the past four years as another way of encouraging less company car usage,
the government has been offering a 5p tax allowance per passenger per business
mile, for carrying fellow employees in a car or van, on journeys which are also
happen to be for work. All part of the government tackling the big car picture,
and more particularly what it sees as the abuse of company cars and profligate
corporate behaviour. However the allowance has not set the business, or any
other world, alight.

Because of the way these allowances are recorded the Inland Revenue has no
way of knowing how much is being paid out and whether the uptake on the
allowance is increasing or declining. Our research is that what early take up
there might have been failed to build momentum.

Liz Holland is fleet manager of the 350 cars owned by property consultants
DTZ. She says: ‘We don’t use this allowance. I am aware of it but I haven’t
really publicised it as it is not all that relevant. I know the allowance
existed, but not too much about the workings of it and at 5p per mile, hadn’t
thought it would be worth looking at.

Holland says that although the company could advertise the availability of
the extra passenger money, it would cost DTZ more in mileage payments, and at no
benefit to the company, ‘since occasions where two or three employees drive
separately to visit the same end locations would be few and far between.’

In Reverse

However she says if the situation were reversed, it would most certainly be
worth DTZ advertising more widely. ‘Car sharing isn’t all that relevant in our
business as professionals are usually travelling on their own and any way most
of our cars are a perk rather than for company use. There are occasions when a
senior and junior may travel together but it’s very rare. It’s just not a very
significant issue for us. In terms of becoming greener in our transport policy
we now have three hybrid cars in our London pool, we also encourage video
conferencing but car sharing is not something we have taken up.’

Several managers pointed out that there was more of an incentive at 40p a
mile for two executives to both take their individual cars especially now petrol
prices were coming down. For most managers the incentive of 5p a mile to go out
of their way was not enough in terms of the time/cash reward ratio.

‘Those that share do it anyway, all the allowance means is now they get paid
more, ‘ one senior manager says.

There are obvious practical problems. For example while two executives may be
going to the same meeting which may make sharing a car sensible and
environmentally desirable they may afterwards be going in different destinations
which may make car sharing less practical.

No organisation has done more to encourage efficient and therefore greener
transport for its workforce than Surrey County Council. Interestingly rather
than encourage the passenger car allowance it has gone down the pooled car
route. The council has a fleet of seven pool cars split between Leatherhead,
Reigate and Guildford, County Hall in Kingston, Fairmont House, Leatherhead and
Quadrant Court, Woking.

Employees on council business book a car with reception staff at the building
they are travelling from. When they have finished their journey they hand back
the key and card and staff will check the vehicle isn’t damaged.

‘It’s perfect for car users who are out of the office frequently, but not all
day and every day, such as engineers or care workers, but anyone can use them,’
says Tessa Zant, who is the lead officer for the council’s corporate travel

‘It also makes claiming expenses easier because there aren’t any. Each car
has a fuel card so you just take it to a petrol station, fill it up, use the
card to pay for it and go.’

For the council this means that the more environmentally sound commuting
methods of using public transport, bicycles and walking are not compromised by
employees who have to take a car journey during the working day.

The fleet operators trade body ACFO reports that while there is something of
a take up of this allowance in the public sector, it is little used in the
private sector.

‘Companies who are sending more than one person out in vehicles any way will
exploit the allowance but few are going to change their behaviour,’ says Stuart
White an ACFO director. It would seem that the government is paying extra
taxpayers’ money for behaviour which would have taken place anyway.

Even which organises commuters sharing rides to and from work
knew little about the allowance.

This is hardly surprising. Even Friends of the Earth and Transport 2000, who
you would have thought had every interest in monitoring the success and effect
of this allowance, hardly knew of its existence.

Reasonable success

PricewaterhouseCoopers, although it encourages and expects its employees to
share vehicles to business meetings ‘wherever possible’, does not use the
allowance. ‘It is not cost efficient to operate’ PwC says.

However John Pryor, group car fleet and travel manager at the Arcadia Group
and director of ACFO, admits that his company does promote the passenger tax
allowance and that there has been a reasonable take up.

Companies which promote the tax allowance often find that there is an initial
take up of around 20% of those who could benefit and while each year sees a few
more taking advantage the numbers very quickly stabilise. Major companies with a
national branch network that promote the scheme to all managers and executives
who have to travel extensively find that something like 120,000 miles a year are
being claimed on the allowance. For a national company £6,000 is not a great

Richard Webb, senior manager of employer solutions at Grant Thornton, sees
this as further proof that even where the allowance is promoted those who are
probably sharing anyway take advantage, and those where a change in behaviour i
s needed to take advantage do not bother to change.

Webb says: ‘I have as many clients who take up this allowance as don’t. When
I mention it to new clients it rarely excites anyone. There is major convenience
factor in travelling alone. Two may go to the same meeting but have to go to
different destinations afterwards. Today’s working environment where everything
is far more fluid and personalised does not lend itself to car sharing. What is
happening is that companies through the allowance are recognising good
behaviour, but I don’t think there is much of a change going on. Most companies
encourage the use of public transport any way.’

Graham Morgan, a tax partner with Kingston Smith, says: ‘I haven’t come
across many clients using this allowance I don’t think it’s widely understood,
known or bothered about. It’s quite a nice pr gimmick rather like the tax free
bicycle but although like the bicycle it may stir the imagination in terms of
real practical benefit and change I don’t think it amounts to much.’

Gary Hall, director of HR Services at PwC adds: ‘Cars are an important issue,
companies do want to tick the green box and reduce costs, but not only is this
allowance pretty unknown many are not sure that it will actually save them much
money. When I share a car it’s because I want to, not because I am saving

If this analysis is correct then the government allowance is subsidising
existing behaviours rather than encouraging new attitudes and greener habits.
Government critics might like to point out that once more there is more spin
than substance in the measure and once more government efforts to try and change
behaviour have done nothing more than increase the government’s, that is the
taxpayers’, cost. And for little appreciable gain to the common good.

Others might argue that as part of a much larger programme of measures, tax
incentives and publicity, the passenger tax allowance has a part to play,
however small, in changing our travelling habits.

Mileage/passenger payments:

Passenger payments are:
? payments made to employees on business travel
? in cars or vans
? for carrying as passengers fellow employees who are also travelling on

Passenger payments are available for travel in:
? an employee’s own car or van, or
? a company vehicle provided the employee is chargeable to tax on car benefit or
van benefit.

Passenger payments are free of both tax and NICs if they are within the
statutory maximum amount for passenger payments. You can find guidance on the
maximum amounts for tax at
onwards and for NICs at

No relief is available to the employee where passenger payments are not made
or the amounts paid are less than the maximum.

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