Employees who use their own vehicles to travel for work have been left “stranded on the roadside” by outdated mileage rates, the Association of Taxation Technicians (ATT) has warned.
Employees can be reimbursed for business travel tax-free – provided that their employer does not pay more than HMRC approved rates. For employees using their own car or van, the tax-free rates are 45p per mile for the first 10,000 business miles in a tax year, and 25p per business mile thereafter. If the employer pays less than these rates, employees have the option to claim tax relief on those amounts from HMRC.
Where an employee has a fellow employee as a passenger on a business journey, they can also be paid 5p per business mile per passenger tax-free, although there is no tax relief available if an employer does not reimburse the employee at the allowable tax-free amount.
These rates have not been updated since 2011, despite the cost of motoring increasing by almost 60% in the last 10 years.This includes a staggering 220% rise in the cost of tax and insurance.
Ahead of next week’s Budget, the ATT saysthese out of date rates mean many drivers, especially those on the lower end of the pay spectrum, are facing growing costs for using their own vehicles for work. This contrasts with the approved mileage rates for company cars, which are reviewed by HMRC on a quarterly basis.
Jon Stride, chair of the ATT’s Technical Steering Group, said: “These rates are now so out of date that employees using their own vehicle for work are effectively out of pocket. What’s more, if an employer chooses to pay higher mileage rates which better reflect the cost to their employee of running a vehicle, this creates tax and national insurance implications for both the employee and employer.
“Essentially, the failure to increase these rates over the past 14 years means employees have been stranded by the roadside by rising motoring costs. The Bank of England’s inflation calculator3 suggests that 45p in 2011 would be worth 67p by August 2025.”
