Using Your Own Car For Work Subsidises Your Employer And Leaves You Seriously Out Of Pocket

19th January 2024

Employees driving their own car for work - so-called grey fleet drivers - are being left out of pocket with current rates remaining unchanged for more than a decade.

That's according to research conducted by the RAC Foundation, which suggests the 45 pence per mile (ppm) approved mileage allowance payments (AMAPs) rate should increase by 41% to 63p.

The tax free rate is set by HMRC but that does not mean an employer cannot pay more. The snag is tax will be payable on the amounts over 45p. It would be good if HMRC got instructions from the government to bring in a more realist amount tax free.

AMAPs are designed to include fuel, insurance, servicing and maintenance, with employers able to pay employees up to the approved without having to pay any tax on them.

This tax-free rate for cars is currently set at 45ppm for the first 10,000 business miles and 25p thereafter.

The rate was last increased in 2011, rising from 40p to 45ppm.

"We think the Treasury should commit to an urgent review of the mileage rate," Steve Gooding, RAC Foundation

According to the Office for National Statistics (ONS) the cost of motoring in April 2023 was 41% higher than in April 2011.

A rate of 63ppm would mean that someone covering 5,000 miles per annum for work in their own car could receive up to £3,150 before facing a tax liability.

However, if a firm uses the current tax-free maximum of 45p as the rate of reimbursement, an employee will only get a total of £2,250 meaning they are losing out by £900 each year.

The research by the RAC Foundation was carried out to help inform a report by the union Unison into the impact of the rate freeze on front line public service workers.

The ONS's cost of motoring number is derived by taking the price of the different elements of motoring expenditure from within the overall ‘basket of goods’ it monitors, and combining them together in the proportions spent on each on average.

Looking individually at the different cost of motoring categories as identified by the ONS: tax and insurance’ has risen 183% over the given time period; maintenance has risen 48%; purchase costs have risen 16%; and petrol has risen by 12%.

What Can You Do?
Look for jobs that offer a business car or van. Some places use pool cars.

When going for new job ask about mileage rates than calculate how much you will need to use the car If the mileage is high like places in Highland then it may be better looking for a job that does not need your car.

The mileage rate payments are ridiculously out of date and what riding costs to run a car some jobs may not be worth taking.
If the job covers a big area such as Caithness and Sutherland it may hit your standard of living hard if you have to travel frequently on the now measly 45pence per mile.

Ask if the employer will pay more than 45p per mile. Remember many find it convenient to use the HMRC tax free amount. They do not have to use that but many stick to it and say its up to you - take it or leave it.

With high costs of motoring in rural areas more and more will choose not to take jobs unless the salary is excellent.

It can only get worse if fuel prices rise again, Car insurance rates are soaring and buying a car is now more expensive even for second hand cars.

Employers should be thinking about it.

The Government response to a petition in 2023 was -
The Government sets the Approved Mileage Allowance Payment (AMAP) rates to minimise administrative burdens.

The current AMAP rates allow employees to claim up to 45 pence per mile for the first 10,000 miles and 25 pence for each subsequent mile, tax free, if they use their private car or van for business purposes. An additional 5 pence per mile may also be claimed for every passenger transported.
 
The AMAP rate is intended to create administrative simplicity by using an average, which reflects vehicle running costs including fuel, depreciation, servicing, insurance, and Vehicle Excise Duty. As it is an average, the rate is necessarily more appropriate for some drivers than others.

Employers are not required to use the AMAP rates. Instead, they can agree to reimburse a different amount that better reflects their employees’ circumstances. If an employee is paid less than the AMAP rate, they can claim Mileage Allowance Relief (MAR) on the shortfall. However, where payments exceed the relevant AMAP rate, there will be an Income Tax and National Insurance charge on the difference.

At Spring Statement 2022 in response to fuel prices reaching record levels, the government announced a temporary 12-month cut to duty on petrol and diesel of 5p per litre. This cut represents savings for households and businesses worth around £2.4 billion in 2022-23.

As with all taxes and allowances, the Government keeps the AMAP rate under review.