Community and low-income workers, who have seen payment for using their cars on business massively eroded by high fuel prices, need a five-pence increase in the untaxed mileage allowance to allow them to continue, says The AA Motoring Trust.
In the run-up to the Chancellors Pre-Budget Report statement on Monday (5 December), the AA Trust has written to the Treasury asking for an increase in the Approved Mileage Allowance Payment (AMAP) for the first 10,000 business miles from 40 pence to 45 pence per mile. This would apply to around three million employees* who volunteer to use their own cars for the benefit of their companies, charities, community and health organisations, and other bodies.
A comparison** of 2005 car costs with the Approved Mileage Rate (AMR) for cars doing up to 10,000 miles per year, the 40 pence per mile limit, shows that small cars doing 5,000 to 10,000 business miles benefit slightly but medium-sized cars are nearly 50 per cent worse off***. At 5,000 business miles, small cars are around 25 per cent worse off and medium-sized cars lose out by more than 100 per cent.
Above 10,000 business miles, when the AMR drops to 25 pence per mile, the cost of running a small car only begins to equate with the mileage allowance once the employee has driven more than 20,000 miles. Larger cars continue to lose out.
The trust also believes that the AMAP scheme is a clumsy system that leaves drivers with vehicles other than small and modern cars at a disadvantage and needs to be reviewed. It also subsidises employers by protecting them from the effects of runaway petrol prices.
As petrol prices burst through the 90 pence-a-litre mark in August, and continued to rise, most telephone calls and emails to the AA Trust came from small businesses, charities, district nurses and other drivers using their cars for business use complaining that 40 pence a mile was inadequate, says Ruth Bridger, petrol price expert for The AA Motoring Trust.
Small businesses, charities, health agencies and other community services rely on workers driving their private cars for business use because it means not having to spend budgets, particularly public money, on leasing or inflexible public transport.
If the level of remuneration puts strain on the workers finances, it undermines the relationship with the employer. It also means that the driver has to cut back on maintenance costs and rely on older vehicles. This impacts on reliability and employees ability to carry out business, community and welfare work.
In its report to the Treasury, The AA Motoring Trust argues that the AMAP rate was not generous when it was set in April 2002. As a flat rate, it favours more economical cars but makes no concession to drivers who, perhaps through family needs, run a less economical car. Low-paid workers do not have the money to go out and buy a small, economical and new car that is better suited to the AMAP rate.
In effect, rather than a logical reimbursement that workers may expect when they volunteer to use their cars on business, drivers with less economical cars are being taxed more on their incomes. This was not the case before 2002 when an individual could claim more if it was found that the actual cost of running a private car on company business was greater than the Approved Mileage Rate.
Before 2002, there were four engine-size bands and the mileage rate varied between 28 pence and 63 pence per mile.
NOTES TO EDITORS: *Distribution of private cars used for business in thousands, by engine size and mileage (2001):
Cars up to 1500cc
0 1,999 miles 830
2,000 3,999 230
4,000 7,499 140
7,500 9,999 30
Over 10,000 40
Total 1,270
Cars up 1500-2000cc
0 1,999 miles 880
2,000 3,999 230
4,000 7,499 190
7,500 9,999 60
Over 10,000 130
Total 1,580
Cars up over 2000cc
0 1,999 miles 80
2,000 3,999 30
4,000 7,499 20
7,500 9,999 20
Over 10,000 40
Total 190
** The comparison is set out on page five of The AA Motoring Trusts Review of Revenue and Customs Approved Mileage Rates.
*** Calculations refer to a cost of fuel at 91 pence per litre. The UK average price of petrol topped 91 pence on 16 August of this year. It peaked at 96.06 pence on 14 September, dropped below 91 pence on 13 November, and is currently more than 88 pence per litre. In January, the UK price of petrol averaged 79.6 pence per litre.
