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HMRC challenge on mileage allowance

Given the increase in petrol costs, a client is now paying his staff 47 pence per mile allowance for use of their cars for business. This is 7 pence per mile higher than HMRC guidelines.

Since it is easy to demonstrate that this is the real cost - and many estimates eg the AA suggest that it is much, much higher - how will HMRC cope with this claim ?

Best wishes,

Mike

Mike Bassy

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07th Jul 2008 09:26

Insurance for £100?
Yep, £107 to be exact ... inc class a biz insurance. Group 1A .. 42yo male full no claims ... lives rural area.

Servicing once per annum ... year one £120.00 ... year two £180.00 .. year three £120.00.

Unleaded £1.28 per litre.

I should be taking a commission from Peugeot for this!

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By Anonymous
04th Jul 2008 17:02

Insurance for £100!!
Where can anyone insure a car for 'Business Use', fully comp etc for £100. Have you got enough insurance cover for business use?

I drive a very modest 1998cc diesel, my insurance is £700pa (full no claims too, and I shop around), the servicing is £700pa, the breakdown is £200, tyres £200.

And please can someone tell me where they can fill up for £1.279 a litre, the rate the FPCS rates are based on?

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26th Jun 2008 00:21

Ronald

Pre 2002, the various FPCS rates did not include finance charges and an additional amount could be claimed. But the law has changed.

The only tax free payments that can be made since 2002-03 are those that are calculated in accordance with the miles travelled and cannot exceed the AMR. No additional relief is due in respect of using a private car. The statutory reference are mentioned below.

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26th Jun 2008 00:04

EXCLUDE FINANCE COST
I thought we had established earlier that cost of finance was the one cost you can claim in addition to the 40p/mile?
Do you agree Andy P and for that matter our very own NRM?
This was the one cost not factored in to the 40p rate.

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26th Jun 2008 09:19

Ronald
Yes, agreed.
This debate, I think, is specifically on employee mileage claims.

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25th Jun 2008 16:43

Not mistaken
Cost new £7,000.00

Value after 36 months = £3,500.00

Capital (at 12000 miles per annum) = 10p

Annual costs (Ins £100, Service £200 & sundry £? & tax - £35) = £500 = 4p

Fuel - 218 gallons @ £5.90 / 12,000 = 11p

Haven't allowed for interest but I was just making the point that 40p for some equals a profit.

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25th Jun 2008 14:11

Mark
but presumably it would be reasonable to assume that each car purchaser has at least an opportunity cost of capital, even assuming that some car owners have no debt whatsoever?

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By Anonymous
25th Jun 2008 13:55

Costs WILL vary between individuals
Some car owners will not have a loan or hire purchase - they will purchase the vehicle outright.

Others will such finance arrangements.

Here is a good example where ACTUAL incurred costs (interest in this case) will vary between individual taxpayers.

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25th Jun 2008 11:58

Steven, you must be mistaken?
don't think depreciation is straight line in the real world, so not possible to come up with a single figure unless you average whole life depreciation over the expected life of the car - but still too many assumptions for 25 p a mile to make any sense - what about unforseen costs - and have you included the cost of capital in your calcs?

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25th Jun 2008 08:53

I worked out my cost per mile recently ....
and it came to 25p per mile all in. The car is new, it is petrol engined and is nothing weird or wondeful. So Mike, are you sure in your figures?

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24th Jun 2008 17:43

Not HMRC Guidelines - It's the Law.

A deduction for the expense incurred using your own car for business is prohibited by s359 ITEPA 2003. The actual costs incurred are not tax deductible.

The only way a tax free reimbursement can be made is via the authorised mileage payments at s231. The amount of the reimbursement is set out in statute at s230. It will require the Treasury to make an order (a Statutory Instrument) to amend those rates. They have said that they have no intention doing so.

The nature of a one size fits all allowance is that there are winners and losers. Many cars still cost less than 40p per mile to run.

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24th Jun 2008 17:24

"AA suggest that it is much, much higher"
Not necessarily: -

According to the AA, the average cost of running a car can be anything from 23.7p per mile (for a diesel car costing under £10,000 with an annual mileage of 30,000) to 234.87p per mile (for a petrol car doing 5,000 miles a year).

It really does depend.

Whilst the cost for one car may well be 47p, it is unlikely to be exactly the same for more than one car.

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24th Jun 2008 17:02

Now there's a coincidence!
How is it easy to demonstrate that the real cost is 47p per mile? Do all employees have identical cars? You say 'their' cars, so I assume this is not a sole director/shareholder.
Remember, 40p per mile has never been the real cost, just a tax-free allowance, so if fuel has gone up 7p a mile - and you say it the petrol cost that gives rise to the increase - it doesn't make the new cost 47p.
Don't forget, purchase price of cars has come down. Has that been factored in?

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By Anonymous
24th Jun 2008 16:41

Taxable
If I were him I would write to HMRC and send in costings and ask it to agree that he may pay his staff his own version of the scale rate. Never know unless you ask.

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