Mileage rate with car allowance

What mileage rate for employee already receiving car allowance?

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What policies do employers have for mileage claims when an employee is already receiving a car allowance to cover the capital cost of the car?

As far as I can see there are 2 published rates:

- MAP. This is the 45p/25p per mile rate which is for use of an employee's own car and cover fuel, maintenance and capital costs. i.e an all-inclusive rate,

- AFR. This is the 11p/14p/21p per mile rate which is for use of a company car and covers only fuel.

Neither of these cover the situation where an employee can claim for fuel and maintenance costs, but not capital costs which are covered by a car allowance.

Presumably the car allowance recipient should be able to claim something in between the AFR and the MAP for mileage, but there don't seem to be any available figures for this.

 

Replies (24)

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By mrme89
13th May 2019 12:33

The employer can pay what it likes.

If the employer pay more than 45/25ppm, then the additional amount is taxable.

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By andy.partridge
13th May 2019 12:41

Surely, you're over-thinking it.

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By jwgrogan
13th May 2019 13:05

I understand that the employee will not get taxed if the rate is under the MAP rate, and that he can even claim tax relief if it is under MAP, but this isn't a question about the tax treatment. The employer has come to me asking to give them a figure and I'd like to be able to justify it somehow, rather than just pulling one off the top of my head.

The employer won't want to pay MAP as it is already paying the capital cost, and the employee won't settle for AFR as it doesn't include maintenance costs. So, just somewhere in the middle?

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Replying to jwgrogan:
By mrme89
13th May 2019 13:09

It's whatever the two parties agree.

It's not up to you to come up with an amount and justify it.

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Replying to mrme89:
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By jwgrogan
13th May 2019 13:18

I would think it would be quite standard for a client to ask their accountant to advise a reasonable rate for them to use in this situation. The problem is there isn't an easily accessible rate to respond with.

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Replying to jwgrogan:
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By andy.partridge
13th May 2019 13:47

No, I got the impression you were looking for "official figures" to refer the client to.

You said the employer was paying a car allowance, presumably taxable, which may or may not have any connection to the vehicle the employee is driving. You haven't said. To say the employer is already paying the capital cost is a stretch. The employer may or may not be contributing to it.

The answer is really staring you in the face. It is (edit, sorry, 'up to the') maximum the employer is prepared to pay, which is hopefully more than the minimum the employee will accept. All you can add is smoke and mirrors.

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By paul.benny
13th May 2019 13:24

As an employer, my position is
- if we provide a (fully-maintained) company car, our mileage rate should cover the fuel used on company business - hence 14p a mile for most vehicles
- a car allowance allows you to make your own vehicle choice but the employer is still (in effect) covering the cost of the vehicle. Therefore the same fuel-only mileage rate applies.

The employee with a car allowance can claim on their tax return the difference between 45p and 14p.

I would be cautious about requiring those with company cars to pay for their own maintenance. If there was an accident involving a poorly-maintained company vehicle, the company could be liable, just as if there was a poorly maintained machine.

If you are paying maintenance bills for employee-owned vehicles, that's a straightforward benefit in kind. Mileage rates don't come into it.

If employees are using their own vehicles, you should ensure that their insurance covers business use.

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Replying to paul.benny:
By mrme89
13th May 2019 13:25

'The employee with a car allowance can claim on their tax return the difference between 45p and 14p.'

Do you actually mean claim tax relief on the difference between...?

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Replying to mrme89:
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By paul.benny
13th May 2019 15:20

My wording wasn't quite clear - I meant claim the difference as an expense so they get tax relief on it., so yes.

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By jwgrogan
13th May 2019 14:30

OK, so the answer is:

The position is not straightforward in that there is a recognised mileage rate for a company car, where only fuel is being claimed, and there is a recognised mileage rate for an employee's own car where the employer is reimbursing fuel, maintenance and capital cost, but there is no recognised mileage rate for where an employer wants to reimburse fuel and maintenance but no capital cost.

In this situation it is up for negotiation between the employer and employee what rate to use. Presumably higher than the 21p/mile for fuel only, and lower than the 45p/25p rate above which the employee would incur a tax liability.

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Replying to jwgrogan:
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By andy.partridge
13th May 2019 14:50

To be fair, you said this WASN'T a tax question but the rates you are seeking to rely on ARE for tax purposes.

After all, nobody really thinks that it costs the same to run a Mini and a Bentley or that either costs 45p per mile.

Additionally, it is arguable whether the 'car allowance' is relevant at all. Isn't it just a separate item in the remuneration paragraph of the employment contract, wholly unrelated the list price, age and running costs of the employee's private vehicle? Isn't it unrelated to any business mileage the employee might undertake and, isn't it justifiable for the employee, therefore, to claim 45p/mile or whatever the going rate is with that client?

Just thinking aloud, as I hope you are.

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Replying to andy.partridge:
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By Accountant A
13th May 2019 15:12

andy.partridge wrote:

Additionally, it is arguable whether the 'car allowance' is relevant at all. Isn't it just a separate item in the remuneration paragraph of the employment contract, wholly unrelated the list price, age and running costs of the employee's private vehicle? Isn't it unrelated to any business mileage the employee might undertake and, isn't it justifiable for the employee, therefore, to claim 45p/mile or whatever the going rate is with that client?

Admittedly a few years ago but I've seen employers limit business mileage to fuel only where "car allowance" was optional to a company car so there might be some mileage (see what I did there?) in looking at the terms under which the car allowance is paid. Again, as you say, not a tax issue, more HR/contract law.

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Replying to Accountant A:
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By andy.partridge
13th May 2019 15:23

Indeed. Either the OP hasn't gleaned all the relevant info from the client or there is no more relevant information. If it's the latter all options are up for grabs.

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By jwgrogan
13th May 2019 15:36

It's not a tax question - I know what the tax treatment is.

In this situation the employer is definitely paying the equivalent of the capital cost of the vehicle. The company had agreed a remuneration figure with the employee and then added a grossed up figure on top of that to reimburse the employee the net monthly cost of renting the vehicle.

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Replying to jwgrogan:
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By andy.partridge
13th May 2019 15:50

OK, some more information.

Now, if I were the employee I would say, 'so what?' My employment package includes an amount that pays for me to run my car contract hire vehicle for my own private purposes.

Unless there was some clause otherwise I would be saying that if the employer wants me to use my contract hire vehicle for business purposes they should stump up the mileage rate they offer to others who also use their own car on business.

Isn't, say, £40k salary + £2k car allowance just the same as £42k salary in this instance, in principle?

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Replying to andy.partridge:
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By jwgrogan
13th May 2019 16:38

I think that's different. The other people who use their own cars that they have bought themselves would be on £40k not £42k.
Why pay this guy £42k when he could be paid £40k and an all-inclusive mileage rate instead?

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Replying to jwgrogan:
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By andy.partridge
13th May 2019 16:49

jwgrogan wrote:

I think that's different. The other people who use their own cars that they have bought themselves would be on £40k not £42k

Why? Because they are not good negotiators? Why should this employee be disadvantaged on the mileage rate?

Is it because there is something in their contract of employment that caters for it, or is it just that they are meant to be grateful they have a car allowance and should show goodwill in return?

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Replying to jwgrogan:
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By jwgrogan
13th May 2019 17:06

So 2 guys come along for a couple of £40k jobs. First guy has his own car already and the company will pay him £40k + 45p/mile to cover his business use of that car. Second guy has no car. Should he get £40k + £2k car allowance + 45p/mile? I don't think so. Shouldn't he get £40 + £2k car allowance + a lower mileage rate?

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Replying to jwgrogan:
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By andy.partridge
13th May 2019 17:34

Only if those options were put to the employee, the employee made a choice between the two and it was confirmed in the contract of employment.

Comparison of salaries is a minefield. The person on the car allowance might believe they are worth more than the person without one. The employer might think that too and that's possibly why they gave them the allowance.

From your posts I suppose the employer and employee never discussed this point and there was nothing in writing. In my opinion it would take a generous employee to simply accept a lower mileage rate. It's all up for negotiation.

You are acting for your client so can not pretend to have the interests of the employee as a priority. If I were acting for the employee I would be going for the 'normal rate' that everyone else gets.

As has been said earlier, though, you might be better off out of it because it is not an accountancy or tax matter. It is a subjective HR matter.

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Replying to jwgrogan:
RLI
By lionofludesch
13th May 2019 18:47

jwgrogan wrote:

So 2 guys come along for a couple of £40k jobs. First guy has his own car already and the company will pay him £40k + 45p/mile to cover his business use of that car. Second guy has no car. Should he get £40k + £2k car allowance + 45p/mile? I don't think so. Shouldn't he get £40 + £2k car allowance + a lower mileage rate?

Jeez - I think you're asking too much here.

If you need to do some sums on a fair price for the guy's use of what is, in effect, his own car, notwithstanding that he gets extra salary as an allowance, that's one thing - but we seem to be being asked to pluck some figures from the air for a car and employee that we know nothing about.

What car ? How many business miles ? How many private miles ? What are the expenses of the car we're supposed to be contributing to ? How much car allowance does he get ?

So many questions .........

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Replying to lionofludesch:
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By jwgrogan
14th May 2019 10:03

Yes, that's the point of the query. For a company car or a privately owned vehicle there is no need to ask all those questions because there is a convenient recognised calculation of a rate to start with, which glosses over all (or most of) those variable factors.
But throw in a simple car allowance which exactly covers the capital cost (in this case) and there is no convenient equivalent.

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By lionofludesch
14th May 2019 10:54

So you give us no information yet expect us to magic an answer.

We're not sawdust plaiters.

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By rhino83
14th May 2019 08:15

In my employment I get a car allowance the same as many of my colleagues. I bank that each month and continue to drive my 15 year old VW with 160k on the clock and claim 45p per mile for any business miles. I'm hoping to get at least another 40k out of it before I change.

Some colleagues use the allowance to take advantage of the company car scheme which doesn't include fuel so there only claim the reduced rate. Others use the allowance against a private/lease car and claim 45p per mile.

Colleagues on the lower band don't get a car allowance at all, but at the same time do much less business mileage and colleagues on a higher bank get a much larger allowance but can only claim 15p per mile for business mileage. This is part of their contract which they accept when they get offered the salary increase.

So it is totally down to the employee and the employer to negotiate between them. A good idea would be to put a formal policy in place for future reference.

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By neiltonks
14th May 2019 11:04

Paying a car allowance along with a lower-than-AMAPS mileage rate is an expensive way of financing travel because the allowance is taxable and NIable.

Giving a £4000 allowance to a higher rate taxpayer costs the employer £4,552 (or a bit more if they pay apprentice levy) but benefits the employee by only £2,320, with the remaining £2,232 going to the government in tax and NI.

It's better to always pay the full 45/25p per mile allowable under AMAPS, reducing the car allowance accordingly, as this minimises tax and NI overall.

It needs a bit of calculation but it can be done if you have a reasonable estimate of the annual business mileage, and both employer and employee can end up better off.

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