Government should increase the mileage rate that employees can claim when using their own cars for business travel, a leading accountancy and tax firm has urged.
The car mileage allowance has remained unchanged since 2011 and no longer covers the cost of fuel, let alone insurance and maintenance, said Hillier Hopkins LLP.
Employees can claim 45p for each mile of the first 10,000 miles per year and then 25p per mile over that. But these figures have not kept pace with rising cost of living and of car ownership.
“Given the soaring cost of petrol and increased cost of living, people who rely on their car for work are simply and unfairly being left out of pocket,” said Natasha Heron, tax manager at Hillier Hopkins.
She added: “Previous governments have eroded the tax benefits of company car ownership to such a point that few employers offer company cars as a benefit. Instead, they choose to reimburse staff for the mileage travelled in their personal cars.
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“The government should as a matter of priority increase the mileage allowance that employees can claim from their employers, and that rate should be reviewed regularly, perhaps every two years. We would recommend that the rate be increased to £0.90 per mile for the next two years.”
She conceded that employers could choose to pay employees more than the current 45p rate but said this was considered a taxable benefit by HMRC and brought with it tax complications for both the employer and the employee.
There was a way round this, Heron said: “If, however, the government were to increase the mileage allowance rate, it would be tax neutral from both the employer and the employee. While this would represent an additional cost for businesses, those costs would be deducted against corporation tax.
“It would be a simple and quick way to help employees who have to rely on their car for work in a more targeted way than simply reducing fuel duty.”
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Meanwhile, the electric car mileage allowance is at only £0.04 per mile since electricity is not considered fuel by HMRC. However, there is no limit so even after 10,000 miles per year are driven, the rate remains consistent.
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