Rate per mile should rise by 41%
People who drive their own cars for work purposes are being short-changed because the tax-free amount they can receive in recompense has not changed for more than a decade.
Currently, the Treasury allows workers to get a tax-free amount of up to 45p per mile from their employer on the first 10,000 miles per year which they drive in their own car or van.
However, the so-called approved mileage allowance payment has not changed since 2011 despite big increases in the cost of motoring since then.
According to the Office for National Statistics (ONS) the cost of motoring in April 2023 was 41% higher than in April 2011.
Calculations by the RAC Foundation suggest, therefore, that people who drive their own cars for work should now be entitled to about 63p per mile tax free.
This would mean that someone covering 5,000 miles per annum for work in their own car could receive up to £3,150 before facing a tax liability.
However, if a firm uses the current tax-free maximum of 45p as the rate of reimbursement, an employee will only get a total of £2,250 meaning they are losing out by £900 annually.
The research by the RAC Foundation was carried out to help inform a report by the union UNISON into the impact of the rate freeze on front line public service workers.
The ONS’s cost of motoring number is derived by taking the price of the different elements of motoring expenditure from within the overall ‘basket of goods’ it monitors, and combining them together in the proportions spent on each on average.
Looking individually at the different cost of motoring categories as identified by the ONS:
- ‘Tax and insurance’ has risen 183% over the given time period
- Maintenance has risen 48%
- Purchase costs have risen 16%
- ‘Petrol and oil’ (fuel) has risen by 12%
Steve Gooding, director of the RAC Foundation, said:
“We know that some of our most important workers – those employed in health and social services, and in supporting roles, often working outside ‘normal’ office hours -– need to drive their cars for work but are being left out of pocket by the failure of ministers to sanction an uplift in the amount per mile they can receive tax-free for getting around to do their job.
“These aren’t board members and well-paid executives in new saloons but key workers in 5 to 10 year-old cars who can ill afford to be subsidising the rest of us for the cost of carrying out their critical roles.
“Tax cuts might be off the Prime Minister’s agenda for the time being, but surely fair tax treatment for these key workers should be a significant concern for the Chancellor in the face of a recognised cost-of-living squeeze.
“We think the Treasury should commit to an urgent review of the mileage rate and not leave it another decade before revisiting it again.”
Companies can pay their employees anything they like when reimbursing them for driving for work in their own cars however, any amount over 45p per mile, for the first 10,000 miles is currently taxed.
For each mile driven over 10,000 miles the tax-free amount that is allowed to be paid falls to 25p per mile.
Philip Gomm – Head of External Communications – RAC Foundation
[email protected] | 07711 776448
Notes to editors:
The RAC Foundation is a transport policy and research organisation that explores the economic, mobility, safety and environmental issues relating to roads and their users.
The Foundation publishes independent and authoritative research with which it promotes informed debate and advocates policy in the interest of the responsible motorist. All the Foundation’s work is available at: www.racfoundation.org
The full RAC Foundation report is available to download under embargo: