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Mileage allowance fails to keep pace with costs.

Paul Compton Paul Compton
Thursday 27 January 2011

Later in the year, when it comes time for P11D and tax returns, employees who use their cars for work purposes are going to be hit with more costs because the Inland Revenue has failed to update the tax-free limit on fuel expenses.

odometer.jpgDespite soaring fuel prices, the business travel limit for tax purposes has remained at 40p per mile.  This is pretty sneaky as a large percentage of the fuel-price increase is tax in the first place.

What it means is that employees using their own cars on business will have to foot the bill either for the increased fuel cost or for the tax differential. Depending on the mileage covered, this could mount up to well over £1,000 per year.

Most employers base the amount that they refund to employees on the official Government figures. If the employer sticks to this figure, the employee will not recover the full cost. If a generous employer increases the mileage allowance, the employee will be hit with the extra tax.

UK insurance records indicate that over three million people are required to use their own vehicle for business purposes. These are not just sales reps but district nurses and other lower paid employees.

Comments Post a comment
Patrick Williams
Patrick Williams, Devon
28 January 2011, 07:59AM

Typical of the HMRC. They increase their tax take as fuel prices go up but fail to recognise that employers have to reimburse their employees.
Years ago, I used to have a company car and the company paid all the operating costs. What I had to do was pay for my private usage, which was fair.
Now, I have to buy and run the car and my employer pays me 40p per mile for the use on company business, which is still about 90% of the miles that I drive.
Up until the recent fuel price rises, this was about right. I was taking the risk which I always thought unfair but financially it was about even.
For the last month, I have been losing out as the 40p no longer covers the increased cost of fuel, so my boss said that they would raise the 40p this year.
What my boss did not say, and probably did not know, was that I would pay tax on any increase above the 40p.

  Rating (0)
Angela Leaver
Angela Leaver
1 February 2011, 04:05PM

This is pretty typical of the Government. No joined up thinking. It is simply going to create strife between employees and employers.

  Rating (0)
Kevin Brown
Kevin Brown
3 February 2011, 09:53AM

I did not realise this and I do not think my boss did either.
He has agreed to increase the allowance that he pays but I do not think he knows that I am goin to be taxed on it.

  Rating (0)
Kathryn Giblin
Kathryn Giblin
4 February 2011, 10:29PM

Why does the government, or any government in recent years, have so much difficulty with joined up thinking?
I wonder what the mileage allowance for senior civil servants is and if they have to pay tax.

  Rating (0)
Derek
Derek, Stepney
14 February 2011, 02:38PM

Another example of the HMRC taking advantage of the good old taxpayer. How can the HMRC not increase the tax allowance when fuel prices continue to soar?

  Rating (0)
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