“Outdated” mileage rates leaving care workers out of pocket

Employees can be reimbursed for business travel tax-free - provided that their employer uses HMRC approved rates. For employees using their own car or van, the rates are 45p per mile for the first 10,000 miles, and 25p per mile thereafter.

However, these rates have not been updated since 2011, despite the cost of running a car increasing substantially in that time. Inevitably, those on the lower end of the wage spectrum are worst affected.

The ATT has previously called for mileage rates to be increased, along with other organisations including the Low Incomes Tax Reform Group¹ and Unison,² and has made a representation ahead of next month’s Budget.³

ATT President Senga Prior said:

“These rates have been frozen for so long, employees are no longer being reimbursed the true cost of their business travel. The Bank of England’s inflation calculator⁴ suggests that 45p in 2011 would be worth 64p by July 2024.

“Effectively, employees doing business mileage on behalf of their employer are out of pocket. This particularly impacts those at the lower end of the wage spectrum, such as care workers, who have no choice but to use their own cars.

“To make things worse, an employer who chooses to pay higher rates to better reflect the current costs of motoring creates a tax cost for themselves and their employee.”

The ATT has also called for a “two-tier approach” based on total mileage to be scrapped, and replaced with a simpler, single rate.

The NHS and some local authorities pay rates that differ from those of HMRC. Higher rates are generally paid for small amounts of business travel and lower rates when travel increases.

However, depending on an employee’s mileage over the tax year, what they are paid may be higher or lower than the tax-free amounts available using HMRC rates. Those employees who have received more than the HMRC rates must pay tax on the extra, while those who received less can claim tax relief on the shortfall, which can create confusion for those affected.

Senga Prior added:

“If the HMRC rates were updated more regularly and set at a level that other government departments and local authorities were prepared to accept, this would simplify the position for employees.

“It would also introduce consistency between the private and public sector and reduce administration costs across government.”

Notes for editors

1. LITRG press release: LITRG warns workers of tax and benefits hit from fuel top up money.
2. Unison Bargaining Support Group: Bargaining on mileage rates.
3. ATT Budget Representation - Mileage Allowances.
4. Bank of England inflation calculator.