The authorised mileage rates for employees who use their own cars for business travel will remain at their present level in 2000-01, the tax year starting on 6 April 2000. The rates are set out in the table below. The authorised rate for pedal cycles, announced in the March 1999 Budget, will also remain unchanged at 12p per mile.
From 6 April 2000, there will be an authorised tax free mileage rate of 24p per mile for employees who use their own motorcycles for business travel.
1. The Inland Revenue authorised mileage rates provide an easy guide for employers to the levels of mileage allowances that may be paid free of income tax to employees who use their own cars, pedal cycles and, from 6 April 2000, motorcycles, for business travel. But employees can still use the actual costs of using their own vehicles for business travel to calculate their tax position if they prefer.
Car mileage rates
2. The authorised mileage rates which will apply for business mileage in the year 2000-2001 are:
Authorised rate per mile
Size of car engine on the first 4,000 on each mile over miles in the tax 4,000 miles in the year tax year up to 1,000 cc 28p 17p
1,001cc-1,500 cc 35p 20p
1,501-2,000 cc 45p 25p
over 2,000 cc 63p 36p
3. Under the Car Allowances Enhanced Reporting Scheme (CAERS) employers can use the car mileage rates to calculate and report profit or excess expenditure on the motor mileage allowances they pay to their employees on an individualised basis. The rates also underpin the Fixed Profit Car Scheme (FPCS) reporting arrangements. Both the CAERS and the FPCS are voluntary, administrative arrangements for taxing motor mileage allowances paid by employers to employees who use their own cars for work.
4. All employees, whether or not included in a CAERS or FPCS, can use the authorised rates to calculate any taxable profit on car allowances and motor mileage allowances they receive. In addition, employees may use the authorised rates to support a tax deduction for business motoring expenses, whether or not they are paid car or mileage allowances by their employer. Using the authorised mileage rates means that it is not necessary to keep detailed records of the cost of business motoring. Employees who consider that the rates do not reflect their particular circumstances may use their actual costs of business motoring to calculate their tax position.
Bicycle mileage rate
5. Employers can pay up to 12p per mile to their employees tax free for using their own bicycles for business travel. Employees can claim tax relief on 12p per business mile if their employer pays no bicycle allowance, or on the balance up to 12p per mile if the employer pays less than this rate.
Motorcycle mileage rate
6. Similarly, from 6 April 2000, employers will be able to pay up to 24p per mile tax free to their employees who use their own motorcycles for business travel. Employees will be able to claim tax relief on 24p per business mile if their employer pays no motorcycle allowance, or on the balance up to 24p per mile if the employer pays less than this rate.
NOTES FOR EDITORS
Taxation of Mileage Allowance
7. Many employers pay allowances to employees who use their own cars, pedal cycles or motorcycles for business. These payments are taxable to the extent that they exceed the motoring or cycling costs for which tax relief is due.
8. The law provides for employers to return details to tax offices of the amounts paid to individual employees. Employees then have to make detailed claims for relief based on their actual motoring or cycling expenditure. The tax office assesses each employee on any taxable profit – the excess of what the employee receives over the allowable costs incurred.
Fixed Profit Car Scheme
9. To simplify this procedure, the Inland Revenue operate an administrative arrangement known as the Fixed Profit Car Scheme (FPCS). Under this scheme, taxable profits are calculated by reference to the Inland Revenue car mileage rates. These are mileage rates fixed by the Inland Revenue each year which are estimates of the average tax-allowable costs for a range of car engine sizes. The estimates are based on a proportion of the routine costs (such as depreciation, servicing, insurance and road tax) and all the running costs (such as fuel) attributable to the business miles travelled.
10. The FPCS reduces the need for employers and employees to keep records. And it makes it easier for any tax payable to be collected by adjustment to the employee’s tax code.
11. Where employers pay different mileage rates for cars of different engine sizes, the FPCS works by matching the FPCS bands as closely as possible with the engine bands used by the employer. Where employers pay the same rate of mileage allowances whatever size of car the employees use for business, the average of the two middle bands is used.
12. Employers who wish to operate a FPCS should contact their tax office to set up the arrangements.
Use of Inland Revenue car mileage rates by employees who are not in a FPCS
13. Any employee who uses his or her own car for business travel is able to use the Inland Revenue car mileage rates to calculate any taxable profit on car allowances and motor mileage allowances received. In addition, employees may also use the rates to support a tax deduction for business motoring expenses, whether or not they are paid car or mileage allowances by their employer.
14. If the total car and motor mileage allowances paid are more than the sum calculated using the Inland Revenue car mileage rates then the employee is taxed on the difference. If they are less, then the employee can use the rates to calculate the allowable business motoring expenses. But the allowances actually received from the employer must be taken into account when calculating the tax deduction for allowable motoring expenses.
15. Using the Inland Revenue mileage rates gives taxpayers a simpler way of working out the allowable cost of their business motoring. It means the employee only needs to keep a simple record of business mileage and total allowances received rather than full details of motoring expenses for the year.
Car Allowances Enhanced Reporting Scheme (CAERS)
16. Under CAERS, employers report profit or excess expenditure on the motor mileage allowances they pay to their employees on an individualised basis. Employers who do this must apply the Inland Revenue’s authorised car mileage rates to the full amount of each employee’s qualifying business travel to calculate the amount to be set against the allowances paid, so that, in effect, the calculation is the same as if it had been done by the employee.
Inland Revenue car mileage rates
17. The change in the rates at 4,000 business miles ensures that the rates reflect allowable business costs as closely as possible whatever the level of business mileage. The change reflects the drop in the cost per mile of travelling by car as mileage increases.
18. The average of the two middle bands (see paragraph 2 above) is 40p for the first 4,000 business miles and 22.5p thereafter.
Right of employees to opt out of FPCS or not to use the authorised mileage rates
19. Employees can be taxed on the strict statutory basis if they keep the necessary records of motoring expenses and business and private (including ordinary commuting) mileage. Employees may use the Inland Revenue mileage rates on an individual basis if they do not want to be dealt with under their employer’s FPCS.
Use of authorised mileage rates by the self-employed and volunteer drivers
20. Self-employed taxpayers with a turnover which does not exceed the VAT registration threshold may use the car, pedal cycle or motorcycle authorised mileage rates as an alternative to keeping detailed records of their actual motoring or cycling expenditure. Volunteer drivers can use the authorised car mileage rates to calculate the profit on mileage allowances they receive from hospitals, social service agencies and other voluntary organisations.
21. Interest paid on a loan taken out for the purchase of a car, pedal cycle or motorcycle used for business purposes may qualify for tax relief. Relief for interest is not included in the authorised rates. It needs to be claimed separately.
22. If employers intend to pay allowances at or below the appropriate rates for cars shown in the table on page 1 of this press release, or the 12p and 24p authorised rates for pedal cycle and motorcycles respectively, they may apply to their tax office for a dispensation. A dispensation is a notice from the Tax Inspector that relieves employers from reporting expenses payments at the end of the year. A dispensation may be given where the Inspector is sure that
– no tax would be payable by the employees on the expenses payments and
– expenses claims are independently checked and authorised within the firm and, where possible, receipts go with the claims.
23. For National Insurance, employers use the up-to-4,000 mile authorised rates to determine whether NICs are payable on mileage allowances. For pedal cycle and motorcycle allowances, there will be no NICs liability if employees are paid at or below the authorised rates of 12p per mile for pedal cycles and 24p per mile for motorcycles. And no NICs liability will arise if the amounts paid are covered by an Inland Revenue dispensation.
24. You can find out more about dispensations by asking your local tax office or by obtaining a copy of the Inland Revenue leaflet IR69: “Expenses payments and benefits in kind. How to save yourself work”. The Inland Revenue also publishes a leaflet for employees, IR125: “Using your own car for work”, which explains the tax position where an employee uses his or her own car to make business journeys. Inland Revenue leaflets are available from any Inland Revenue Enquiry Centre or Tax Office. They are also available from the Inland Revenue Information Centre, SW Bush House, Strand, London WC2B 4RD.