The Insider: Rate of change
The Insider ponders whether the blanket approach to AMAPs has had its day.
I see AMAPs (Approved Mileage Allowance Payments) are back in the news again. These are payments made to employees for the use of their own private vehicle on business and are designed to include fuel, insurance, servicing and depreciation. Companies can pay employees up to the approved rate without tax being payable on them.
They have been fixed at a similar level for at least the past fifteen years – there was a small increase in 2011. At 45p for the first 10,000 miles and 25p for every mile thereafter they often seemed generous, with the level of generosity favouring times of low fuel prices. HMRC’s view was that the rules had to cater for a wide range of drivers and vehicle types, striking a balance which represented fair recompense for using one’s own car, but not enough to make a profit.
Despite the seemingly generous rate, 2008 data showed that over half a million people were being paid more than AMAP rate, but that the number had halved by 2014. It also noted that there was a 25% increase in claims for tax relief during those years. So why should that be?
Well we all made significant cost cuts in our fleets through the period of recession, and certainly reduced reimbursement rates was one area we looked at, as well as cutting business mileage, and unfortunately, sometimes people. Even central government departments started to pay less than AMAP rate, achieving substantial savings in some areas.
Now it seems HMRC is bleating because more employees are claiming – as they are entitled to do – tax relief on the difference between AMAP and their actual reimbursement rate; and it’s costing the Exchequer a significant drop in revenue.
A company car tax expert said that under the latest review the Government will want fleets to provide reasons why employers decide to use a lower rate to reimburse employees when an AMAP is available. I’ll tell them why. It’s a fleet manager’s job to keep costs down, and thus improve our company’s profit.
Using traditional back of fag packet technology, I re-checked private car ownership figures and had difficulty achieving a pence per mile cost above 40 pence per mile, even using new vehicles and accounting for depreciation. For that figure you could run a very decent secondhand but late registered car, or a sensibly priced contract hire option. To be fair, I looked at cars which I considered sensible and suitable for business. Those employees who maybe don’t qualify for a company car but are expected to use their own for occasional business use probably didn’t buy with that definition in mind.
Whilst personal contract hire has increased in popularity, you still see plenty of examples of far older, polluting runabouts being used on business, where the immediate profit element to the employee must be much higher (albeit they will still have to fund a replacement vehicle at some point). Hence the need for stringent and enforced company policy, dictating allowable vehicles by age, type and emission levels, to mirror the company’s professional image across its entire fleet.
And that leads us to the next problem, for HMRC has still declined to set mileage rates specifically encouraging use of electric vehicles. Whilst fuel costs on electric cars – or at least those being driven as the maker intended – are lower, overall running costs will for the moment still be higher, due to the initial purchase premium over standard diesel or electric, and likely significant depreciation as technology improves. So HMRC believes current AMAPs are at the right level. And I will concede that there they have a point. Although equally one could say there is an opportunity to offer a higher rate, as an incentive to EV take-up.
In years gone by, HMRC believed any increase in AMAP could encourage some employees to drive more miles, particularly where they were using older, more polluting cars where depreciation is lower. Maybe it’s time to change the blanket approach, set a separate incentive-driven rate for electric vehicles, and reduce the AMAP for conventional vehicles to a lesser figure so that tax relief is no longer applicable?