Private mileage rates frozen at 45p per mile for years

Sara White, Editor, Business & Accountancy Daily. Croner-i

Employees who use their own car to travel for work business ‘stranded on the roadside’ by absurdly low mileage rates, which have lost touch with inflation, warns Association of Taxation Technicians (ATT).

Official HMRC approved mileage rates have been frozen at 45p per mile up to 10,000 miles annual mileage for 14 years since 2011, a figure which would be 67p per mile if it had tracked inflation.

The freeze has happened despite the cost of motoring increasing by almost 60% in the last decade, according to the RAC Foundation motoring price index. This includes a staggering 220% rise in the cost of tax and insurance.

Ahead of next week’s Budget, the ATT is calling on the chancellor Rachel Reeves to increase the frozen rate to at least 50p per mile to address ‘out of date’ approved mileage allowance payments (AMAPs) rates.

The current 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, warned ATT. This contrasts with the approved mileage rates for company cars, which are reviewed by HMRC on a quarterly basis.

The ATT is calling for an increase to the AMAP rates set out in ITEPA 2003 section 230 ‘to better reflect the current costs of running and maintaining a personal vehicle, in a similar way that HMRC regularly revises the advisory fuel rates for employees using a company car’.

Jon Stride, chair of the ATT’s technical steering group, said: ‘These rates are now so out of date that employees using their own vehicle for work are effectively out of pocket.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 calculator suggests that 45p in 2011 would be worth 67p by August 2025, and 25p from 2001 would be 47p.

‘The position for motorcyclists is even more concerning. To find the point at which their 24p per mile rate was introduced you have to go back more than quarter of a century, to a point when the Millenium Dome and London Eye had only recently been opened.

‘The current approved rate for motorcycles of 24p per mile came into effect on 6 April 2000 and highlights how rarely these things are reviewed. Prices have increased by 90% since then.’

Employees can be reimbursed for business travel tax-free provided their employer does not pay more than HMRC AMAP rates. Car or van drivers can claim the tax-free rates at 45p per mile for the first 10,000 business miles in a tax year, then 25p per mile above 10,001 miles. If employers pay below these rates, employees can claim tax relief from HMRC.

There is also a rate for employers taking colleagues in their cars on a business journey, set at 5p per business mile per passenger tax-free, although there is no tax relief available if this is not reimbursed by the business.