Mileage rates fail to keep up with fuel price rises

With both HMRC and the increasing price of FUEL in the news, many employees who use their own cars for business purposes must be wondering when the official HMRC ‘tax free’ mileage rates, called Approved Mileage Allowance Payments (AMAPs) will catch up with fuel price increases. If they don’t do so, many employees will either refuse to use their own cars for business, or else be seriously out of pocket.

During the past five years AMAP rates have remained the same @ 40p/mile for the first 10,000 business miles each year, and 25p/mile thereafter. In 2002, when AMAP mileage rates were first introduced, the pump price for petrol was in the region of 77.9p/litre. It now costs over £1/litre - or 30% more today than in 2002. Assuming that of the 40p/mile around 13p (or one third) might be directly connected to the fuel element, then any indexation should address this - so making an adjustment solely for the fuel element of the 40p would account for an increase of more than 3p/mile, yet there has been no movement and there appears to be no HMRC mechanism or formula for adjustment. At the start of the year HMRC held talks at the Treasury with company bosses in consultation meetings about ‘reviewing’ mileage rates, but these meetings were almost entirely focused on trying to REDUCE mileage rates, because of the impact that they felt they were having on Employee Car Ownership Schemes (ECOS). Nothing much has happened since and, more importantly, the consultation process did not appear to have seriously considered the effect on the millions of employees who use their own cars for business.

With recent fuel price increases being a direct result of Treasury intervention (imposing additional fuel duty) one has to wonder how much longer HMRC expect business users (or their employers) to carry on using out of date mileage rates which are totally disconnected with what cars cost to run.

Bob Blackman, a management consultant from Emmerson Hill Associates (who prepare car running costs for the RAC), was one of those who attended a consultation meeting at the Treasury in January; here it was pointed out to HMRC officials that whilst there are perhaps 100,000 employees who obtain cars through ECOS schemes set up by their employers, there are around 3 million who use their own cars for business – and would be seriously disadvantaged by any downward change in AMAPs.

States Bob Blackman “ the real cost of getting about should be based on what it actually costs anyone to do so, by a number of means of travel - such as public transport, train, air, taxi and car – and our research shows this average to be nearer 52p/mile than the 40p/mile ‘fag packet calculation’ used by HMRC. For employees using their own cars for business there are stark choices – change to more economical cars, like the Citroen C1, Peugeot 107 and Toyota Aygo, which will achieve 60mpg (but not everyone can afford to buy a new car); refuse to use their cars altogether until the cost is properly (and fairly) reimbursed; or only travel by public transport, which usually takes longer, is usually more costly and is often totally impractical.”