Taxation of Car Mileage Allowances

The rates from 1 April 2008 to 31 March 2009 as agreed by the NJC for Local Government Services are as follows:

These allowances are based on a price of 103.52p per litre (470.6 per gallon) for unleaded petrol (based on actual pump prices in the first two weeks of January [as surveyed by the Automobile Association on behalf of the Society of Motor Manufacturers and Traders] in accordance with the jointly agreed formula for calculating the allowances each year).

Please note that this information is applicable automatically only to NUT members in those local authorities which use the local government NJC rates. Some LEAs may pay different rates per mile or use different classes of engine size.

Taxation of Car Mileage Allowances

From 6 April 2002, new arrangements have applied to determine employees’ tax liability on car mileage allowance payments. Tax liability is determined by reference to statutory Inland Revenue ‘approved mileage allowance payment’ (AMAP) rates.

The current approved mileage rates for cars are as follows:

First 10,000 business miles40p per mile

Each mile over 10,000 miles25p per mile

These rates do not vary according to engine size and the Inland Revenue no longer publishes its previous ‘deemed profit’ tables which reflected engine size.

There are also approved rates for motorcycles (24p/mile), bicycles (20p/mile) and car-sharing allowances (up to 5p/mile for each passenger carried). There is, of course, no requirement for employers to pay allowances in these circumstances.

Where employers’ allowance rates are greater than the statutory rates, employees are liable to income tax or NI contributions on any amount paid in excess of these rates. The existence of the new statutory rates does not, however, prevent employers continuing to pay higher rates if they choose to do so. The employee’s tax liability is normally dealt with through their PAYE code.

Where employers’ allowance rates are less than or equal to these rates, then users will not be liable to income tax or NI contributions. Where rates are lower than the approved rates, employees may claim tax relief on the difference between employers’ allowance rates and the approved rates. In order to claim this ‘mileage allowance relief’ (MAR) records must be kept of total business miles; and mileage allowance payments made by the employer. However, employees may no longer claim tax relief on the basis of their actual car running costs being higher than their employers’ allowance rates.

Further Information

Members in receipt of mileage allowances who have queries about tax liability or tax relief on these payments should contact their employer, their tax office or any Inland Revenue Enquiry Centre.

Further details of records which should be kept for AMAP and MAR can be found on the Inland Revenue’s website at: www.hmrc.gov.uk/mileage/employee-factsheet.htm.