Government 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
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
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
Officials from HMRC, following widespread industry consultation, recently
revealed their ideas for a completely reworked scheme at a Fleet News’ Risk in
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
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
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.
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
- 25p per mile for cars over the 25% band; all cars with noCO2 emissions and
all cars over 10,000 miles.
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.
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.
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