Chancellor, drive up HMRC’s outdated mileage rates at Autumn Statement 2023

If you use your own car for work, as far as HMRC is concerned, the cost of business travel in such a personal vehicle has been unchanged for the last 12 years.

We at the Association of Taxation Technicians disagree, and so we’ve made two representations to the government, calling for an increase to HMRC’s approved mileage rates, writes the ATT’s technical officer Helen Thornley.

As we were unsuccessful with our first submission at the March Budget, next week’s Autumn Statement 2023 provides the perfect junction for chancellor Jeremy Hunt to drive up these outdated mileage rates.

What are HMRC approved rates?

To simplify the reimbursement of business travel in a personal vehicle, HMRC issues approved rates called AMAPs (Approved Mileage Allowance Payments).

Where valid business travel has been carried out, the individual can be reimbursed using these rates without creating a tax charge for them -- or the business reimbursing the costs.

Where the individual has not been reimbursed for valid business travel, then they can use these rates to calculate the ‘cost’ of their travel and claim relief from income tax (but not national insurance) on that as an expense.

The rates are intended to cover costs including fuel, servicing, tyres, road fund licence, insurance and depreciation, plus interest on any loan to buy the vehicle.

The current rates are:

• Car or van rate -- 45p/mile for the first 10,000 miles of business travel, and 25p/mile thereafter.
• Motorcycle rate --- 24p/mile.
• Bicycle rate -- 20p/mile.

There is also an additional passenger rate of 5p/mile which applies per passenger, provided that the journey is also business travel for the passenger.

Employees must use these rates – they cannot use their actual motoring costs

The 45p/rate for cars was last updated in 2011, while the rates for motorcycles and bicycles were last changed in 2001. These rates are now so out of date that individuals doing business mileage in their own vehicle are effectively out of pocket.

A contractor running their own limited company could choose to pay higher rates to themselves, to better reflect the current costs of motoring.

But, any amounts paid above the AMAP rates are treated as a taxable benefit-in-kind which will create costs for both their company and for themselves as individuals, as well as an administrative burden and other potential headaches.

According to the RAC Foundation, the rate for cars and vans should now be 63p/mile. Their calculations include not just increases in the cost of fuel, but also more substantial increases in tax, insurance and maintenance.

Our association has called for HMRC’s mileage rates to be updated annually and for cars and vans to receive the higher rate regardless of the annual mileage.

Why have the rates fallen behind?

We don’t know the reasons why mileage rates have got so out of date.

The lack of change or review over the last decade or more contrasts starkly with the position for ‘Advisory Fuel Rates.’

AFRs are used to calculate a tax-free fuel payment for business miles carried out by an employee in a  company car. Unlike AMAPs, these rates are reviewed every quarter to ensure they fairly reflect current fuel prices.

It is possible that AMAPs have not been increased as it might be seen to be encouraging car use, which is not environmentally-friendly, or because employers as a wider group may be resistant to the increase. Although the rates are not compulsory, there would be pressure from employees to use these rates.

Umbrella company workers and SDC, PSCs and IR35…

Despite the lack of updates to the current rates, the biggest challenge for contractors working through either a personal service company (PSC) or an umbrella company is probably establishing what counts as business mileage in the first place. The rules for both were tightened up in 2016.

For an umbrella worker subject to supervision, direction or control (or the right thereof), travel from home to any assigned locations can no longer be reimbursed tax-free, nor can tax relief be claimed for these journeys. Only travel expenses incurred while working (e.g. going to a client meeting) can be reimbursed tax-free, provided that the payment is made on top of their usual salary.

If no reimbursement is made, the worker may be able to claim tax relief for their business travel at the end of the tax year -- although only for their mileage, not the 5p passenger rate. This is typically done on HMRC’s form P87, or through a tax return if expenses are more than £2,500 (or they need to complete a tax return for any other reason).

PSCs must consider whether IR35 applies. Putting it simply, for any contractors still working through their PSCs inside IR35, the same home-to-work restrictions apply. For those outside IR35, the usual rules apply.

Records, rates, and our recommendation

Finally, it is important to keep evidence of any mileage travelled. Keeping a mileage log – either with an app, or good old-fashioned pen and paper, which contains the dates and mileage of your work journeys will be very important if HMRC makes enquiries.

Arguably even more important right now, for contractors and other workers as the cost-of-living crisis continues, is that all AMAP rates get uprated on November 22nd, to better reflect the current costs of both maintaining and running a vehicle, which has increased substantially since 2003. Then, as we've recommended to the chancellor, AMAP rates ought to be reviewed and updated on an annual basis to avoid the rates falling so far behind again in the future.