Essential Car User Allowance (ECUA) Removal – Managers Briefing Note
This note has been produced to provide further detail about the removal of the ECU lump sum to facilitate discussions with employees.
Currently, employees in receipt of the ECUA receive a lump sum and a mileage payment, as shown below:
Lump sum / Per mile first 8,500 / Per mile after 8,500£846 per annum paid in 12 equal instalments. / 36.9p / 13.7p
The lump sum is paid in full regardless of the hours worked. The ECUA is taxable.
The proposal is that from 1 April 2014 all car users to receive the HMRC mileage rate for business as shown below:
Car User Ratein line with HMRC rate:
Per mile first 10,000 / Per mile after 10,00045p / 25p
The HMRC rate is not taxable.
It is proposed that new contracts, when issued, will contain the following wording:
An employee has a contractual obligation to fulfil his/her duties as described within the individual role profile and terms and conditions of employment. If the employee has to travel to fulfil these obligations then it is the employee’s responsibility to ensure appropriate means of transport to do this. The Council’s obligation as an employer is to reimburse costs in line with Council policy.
Employees who currently use their car in order to carry out their job in an efficient manner are expected to continue to do so. If the employee suggests a reasonable alternative that meets the need of the service without incurring additional cost then this should be discussed in full with you, as their manager. It is not appropriate to agree to an arrangement that would incur additional cost to the council it terms of fees or time taken. Each case will need to be considered on its own merit.
This proposal if agreed will impact on the tax code of each employee affected. A letter template will be developed to assist employees to notify the tax office and will be made available on the intranet.
The table below shows the impact on net pay of the lump sum taking account of tax and national insurance implications. NI at 10.6% is applied to those in the local government pension scheme. NI at 12% is applied to employees who are not in the pension scheme.
Tax 40% / £338.40 / £89.67 / £417.93
Tax 40% / £338.40 / £101.52 / £406.08
Tax 20% / £169.20 / £89.67 / £587.13
Tax 20% / £169.20 / £101.52 / £575.28
Tax is complicated and each individual’s circumstances may be different. In broad terms, a 20% tax payer will break even in terms of net payment after 140 miles per week, or 7248 miles travelled.
A 40% tax payer will break even in terms of net payment after 97 miles per week, or 5,160 miles travelled.