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06 December 2000
News
Revenue press release
Mileage rates to be capped
Revenue press release
Mileage rates to be capped
News
Revenue press release
Mileage rates to be capped
Changes to the tax and National Insurance rules that apply to car and mileage allowances paid by employers to employees who use their own cars for work were announced in the pre Budget report. It has now been announced that the fixed profit car scheme, which was previously no more than an administrative short cut, is set to become a statutory code from April 2002. This is no doubt designed to prevent those with high mileage, expensive company cars gaining a tax advantage by switching to private ownership of the car and claiming actual costs for business use tax free from the employer. From April 2002 it is proposed that any mileage payments in excess of the statutory figures will be taxable, even if there is no actual profit to the employee in the circumstances of the case. Since the same rates can also be used by the self employed, it remains to be seen if their mileage rates will also be capped, although the Revenue press release refers only to employees.
The Revenue has announced the 2001-02 and 2002-03 car mileage rates. These are shown in the box below with the 2000-01 figures given in brackets.
Under the car allowances enhanced reporting scheme employers can use the car mileage rates to calculate and report profit or excess expenditure on the motor mileage allowances they pay to their employees on an individualised basis. The rates also underpin the fixed profit car scheme reporting arrangements.
Where employers using the fixed profit car scheme pay different mileage rates for cars of different engine sizes, the scheme works by matching the bands as closely as possible with the engine bands used by the employer. Where employers pay the same rate of mileage allowances whatever size of car the employees use for business, the average of the two middle bands is used. The average of the two middle bands for 2001-02 is 42.5p for the first 4,000 business miles and 25p thereafter.
All employees can use the authorised rates to calculate any taxable profit on car allowances and motor mileage allowances they receive. In addition, employees may use the authorised rates to support a tax deduction for business motoring expenses, whether or not they are paid car or mileage allowances by their employer. Using the authorised mileage rates means that it is not necessary to keep detailed records of the cost of business motoring. Employees who consider that the rates do not reflect their particular circumstances may use their actual costs of business motoring to calculate their tax position.
Other rates
Currently, employers can pay up to 12p per mile to their employees tax free for using their own bicycles for business travel. Similarly, employers can pay up to 24p per mile tax free to their employees who use their own motorcycles for business travel. Employees can claim tax relief on the respective amount per business mile if their employer pays no allowance, or on the balance if the employer pays less than this rate.
2002-03
Subject to consultations yet to take place, the proposed rates for 2002-03 to apply from 6 April 2002 are as follows:
Cars
On the first 10,000 miles
in the tax year 40p per mile
On each additional mile
over 10,000 miles 25p per mile
Motor cycles 24p per mile
Bicycles 20p per mile
Passengers
To encourage car sharing by employees, employers will be able, if they wish, to pay, tax and National Insurance free, 2p per mile for each passenger carried.
The proposed new rates for cars are designed to provide an incentive for people to use smaller, more efficient private cars for business trip by offering a single tax and National Insurance free rate for all vehicles. Employees will still be able to claim back tax relief on the difference if their employers pay less than the statutory rate. But as a consequence of moving to statutory rates, employees will no longer be able to claim actual business motoring costs if these are above the statutory rate. The interest on a loan taken out for the purchase of a car or cycle used for business, and capital allowances for depreciation will be included in the calculation of the statutory rate so additional relief will not be available. The figures are therefore not necessarily designed to bear much relationship to real motoring costs.
The existence of the new statutory rates will not prevent employers paying higher allowances if they choose to do so, but any amount paid in excess of the statutory rates will be taxable. It remains to be seen whether this political interference in business expenses will spread into other areas.
Authorised rate per mile in tax year
Size of car engine First 4,000 miles Each mile over 4,000 miles
Up to 1,000cc 40p (28p) 25p (17p)
1,001cc - 1,500cc 40p (35p) 25p (20p)
1,501cc - 2,000cc 45p (45p) 25p (25p)
over 2,000cc 63p (63p) 36p (36p)
(Source: Revenue press release dated 28 November 2000.)
Revenue press release
Mileage rates to be capped
Changes to the tax and National Insurance rules that apply to car and mileage allowances paid by employers to employees who use their own cars for work were announced in the pre Budget report. It has now been announced that the fixed profit car scheme, which was previously no more than an administrative short cut, is set to become a statutory code from April 2002. This is no doubt designed to prevent those with high mileage, expensive company cars gaining a tax advantage by switching to private ownership of the car and claiming actual costs for business use tax free from the employer. From April 2002 it is proposed that any mileage payments in excess of the statutory figures will be taxable, even if there is no actual profit to the employee in the circumstances of the case. Since the same rates can also be used by the self employed, it remains to be seen if their mileage rates will also be capped, although the Revenue press release refers only to employees.
The Revenue has announced the 2001-02 and 2002-03 car mileage rates. These are shown in the box below with the 2000-01 figures given in brackets.
Under the car allowances enhanced reporting scheme employers can use the car mileage rates to calculate and report profit or excess expenditure on the motor mileage allowances they pay to their employees on an individualised basis. The rates also underpin the fixed profit car scheme reporting arrangements.
Where employers using the fixed profit car scheme pay different mileage rates for cars of different engine sizes, the scheme works by matching the bands as closely as possible with the engine bands used by the employer. Where employers pay the same rate of mileage allowances whatever size of car the employees use for business, the average of the two middle bands is used. The average of the two middle bands for 2001-02 is 42.5p for the first 4,000 business miles and 25p thereafter.
All employees can use the authorised rates to calculate any taxable profit on car allowances and motor mileage allowances they receive. In addition, employees may use the authorised rates to support a tax deduction for business motoring expenses, whether or not they are paid car or mileage allowances by their employer. Using the authorised mileage rates means that it is not necessary to keep detailed records of the cost of business motoring. Employees who consider that the rates do not reflect their particular circumstances may use their actual costs of business motoring to calculate their tax position.
Other rates
Currently, employers can pay up to 12p per mile to their employees tax free for using their own bicycles for business travel. Similarly, employers can pay up to 24p per mile tax free to their employees who use their own motorcycles for business travel. Employees can claim tax relief on the respective amount per business mile if their employer pays no allowance, or on the balance if the employer pays less than this rate.
2002-03
Subject to consultations yet to take place, the proposed rates for 2002-03 to apply from 6 April 2002 are as follows:
Cars
On the first 10,000 miles
in the tax year 40p per mile
On each additional mile
over 10,000 miles 25p per mile
Motor cycles 24p per mile
Bicycles 20p per mile
Passengers
To encourage car sharing by employees, employers will be able, if they wish, to pay, tax and National Insurance free, 2p per mile for each passenger carried.
The proposed new rates for cars are designed to provide an incentive for people to use smaller, more efficient private cars for business trip by offering a single tax and National Insurance free rate for all vehicles. Employees will still be able to claim back tax relief on the difference if their employers pay less than the statutory rate. But as a consequence of moving to statutory rates, employees will no longer be able to claim actual business motoring costs if these are above the statutory rate. The interest on a loan taken out for the purchase of a car or cycle used for business, and capital allowances for depreciation will be included in the calculation of the statutory rate so additional relief will not be available. The figures are therefore not necessarily designed to bear much relationship to real motoring costs.
The existence of the new statutory rates will not prevent employers paying higher allowances if they choose to do so, but any amount paid in excess of the statutory rates will be taxable. It remains to be seen whether this political interference in business expenses will spread into other areas.
Authorised rate per mile in tax year
Size of car engine First 4,000 miles Each mile over 4,000 miles
Up to 1,000cc 40p (28p) 25p (17p)
1,001cc - 1,500cc 40p (35p) 25p (20p)
1,501cc - 2,000cc 45p (45p) 25p (25p)
over 2,000cc 63p (63p) 36p (36p)
(Source: Revenue press release dated 28 November 2000.)
