Tax increase threat for two million workers

Any changes to the tax-free mileage allowance for employees in the forthcoming Budget could leave more than 2 million employees out of pocket, according to accountancy firm Ernst & Young.

There is pressure being put on the chancellor to cut the 40p per mile tax-free allowance further in the 2005 Budget. Three years ago it was 63 pence for larger vehicles.

This move would unfairly punish employees, many of them in the public sector, who have to use their car for work, said Alastair Kendrick, tax director at Ernst & Young.

“It is simply not true to say that plenty of drivers claiming the 40p rate are currently making a profit on their business travel,” he said. “Subsequently anyone who does any significant kind of business mileage in anything larger than the smallest vehicle will find themselves out of pocket by these proposed changes.”

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