Freeze on tax-free mileage means drivers will soon have to pay to work

·3 min read
car petrol station - Dan Kitwood/Getty Images
car petrol station - Dan Kitwood/Getty Images

A decade-long freeze on the tax-free mileage allowance means drivers now risk being forced to pay to work, as the Treasury faces calls to raise the rate from 45p.

Employees who use their own vehicle for work can claim back 45p a mile tax-free from their company for the first 10,000 miles they drive in a year, after which the rate falls to 25p a mile.

However, with fuel costs rising and maintenance costs increasing, the Treasury is facing calls to raise the allowance which has not changed since 2010.

Mileage Allowance Payments cover vehicle expenses such as fuel, vehicle maintenance, depreciation, insurance and road tax. But the cost of fueling a car alone now nearly covers the entire mileage rate.

An Audi S8 fuel cost is 40p a mile before other costs are considered., while a Land Rover Discovery costs 33p a mile and a Mercedes S500 32p a mile.

In 2010, when the mileage rate was last reviewed, petrol prices were 38pc lower than they are now – at £1.17 per litre compared to £1.90 per litre. An Audi S8’s fuel costs would have then been 25p a mile.

Hugh Bladon, of the Alliance of British Drivers, said the mileage rate should increase in line with the price of fuel. He said: “It’s obviously not enough for the costs. Clearly, with the cost of fuel there ought to be an immediate adjustment – even if it was just to 60p – people are suffering.”

Civil servant Michael Turner*, 43, said he “without a doubt” now spends his own money on driving for work, putting an estimated “£150-200 a month” towards vehicle running costs.

He said: “You have to maintain the car, pay petrol, pay more expensive business insurance, and tax the car. You can’t make 45p go that far. The threshold should rise by the same percentage fuel has increased this year. At least 50pc, to 65 to 70p.”

Not all companies take advantage of the maximum threshold – and most pay less than 45p a mile, leaving employees to claim back the difference from HMRC.

Billy Edwards, 73, who runs a community care company in Somerset, said his company’s 35p a mile rate made it one of the more generous employers.

Rates for NHS workers differ slightly, with drivers able to claim 52p a mile for the first 3,000 miles they drive in a year, after which the rate falls to 20p a mile.

Sam Wyman*, 37, a mental health crisis nurse from Hertfordshire, said: “We’re doing double the mileage we were three or four years ago – around 500 miles a month – meanwhile a full tank of petrol has gone from £70 to £110. I’m essentially paying to work.”

Employers can pay over the 45p threshold but usually do not because it then makes the worker liable for income tax.

Luke Bodset, of the AA, said the organisation had spent “two to three years” campaigning before the rate was initially increased from 40p to 45p in 2011. He said the rate should be reviewed again in Autumn when petrol prices reach an expected plateau.

He said the threshold did “not stack up” to drivers’ maintenance costs, particularly with older cars that drivers will need to replace. A Treasury spokesman said: “We keep all tax policy under review.”