Cost of living crisis: The government should increase mileage rates for employees

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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Our tax experts have called upon the government to make changes on their mileage rates for employees who use their car for business travel. The rate has remained unchanged since 2011 and no longer covers the cost of fuel, insurance, or maintenance.

Natasha Heron, who is a Tax Manager at our firm has said:

“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.

“An employee can claim £0.45 per mile for the first 10,000 miles per year and then just £0.25 per mile over that. This has not changed since 2011. 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.

“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.

“Employers can currently choose to pay employees more than the current £0.45 rate but it is considered a taxable benefit HMRC and brings with it tax complications for both the employer and the employee.

“If, however, the Government were to increase the mileage allowance rate, it would be tax neutral from both the employer and the employee. Whilst 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.”