The government has been accused of relying on a stealth tax from hardworking business motorists who use their own vehicles for work purposes. The approved reimbursement rates, which are the maximum amount an employer can pay an employee for each business mile travelled without creating tax or national insurance issues, have not been updated since 2011/12. This means that many employees are effectively subsidising their employers by bearing some of the costs of business travel.
Reimbursement rates lag behind inflation and rising car prices
The current reimbursement rates are 45 pence per mile for the first 10,000 business miles and 25 pence per mile thereafter. These rates are supposed to cover all the costs of using a private vehicle for business purposes, including depreciation, insurance, fuel, maintenance and repairs. However, these rates have not kept pace with inflation and the rising costs of car ownership.
According to Robert Salter, a tax specialist with Blick Rothenberg, if the government had simply increased the reimbursement rates by general inflation, motorists would be entitled to 61 pence per mile for their first 10,000 business miles per annum and 34 pence per mile thereafter. He added that the rates should be even higher, as using general inflation does not fully capture the fact that UK car prices and service costs have shot up significantly more than general inflation over the past 10 years. A recent report highlighted that the average price of a used car in the UK had increased by 32% in the 12 months to April 2023
Salter said that this situation is particularly unfair for those employees who are required by their employer to drive a ‘nice car’ that gives off a professional impression, but for which they suffer increased depreciation costs that are unrecoverable.
Government policy punishes business motorists
Salter argued that the government needs to provide urgent additional support for employees and the self-employed using private vehicles for business purposes. He said that the government’s policy of freezing the reimbursement rates is effectively a stealth tax that punishes hard-working business motorists who are the backbone of the British economy.
He said that the government should either increase the reimbursement rates to reflect the actual costs of business travel, or introduce a new system that allows employees to claim tax relief on the difference between the reimbursement rates and their actual expenses. He also suggested that employers should review their policies and consider offering more generous reimbursements to their staff, especially if they expect them to drive certain types of vehicles.
He said that this issue is not only a matter of fairness, but also of environmental sustainability. He said that by under-reimbursing business motorists, the government is discouraging them from switching to more fuel-efficient or electric vehicles, which would reduce carbon emissions and air pollution.
Business Matters calls for action
Business Matters, the UK’s leading business magazine, has also called for action on this issue. In an editorial published today, it said that the government’s failure to update the reimbursement rates is a “scandalous” and “short-sighted” move that harms both businesses and employees.
It said that the government should recognise the vital role that business motorists play in driving economic growth and innovation, and reward them accordingly. It said that by increasing the reimbursement rates, the government would not only boost morale and productivity among business travellers, but also stimulate demand for new and greener cars, which would benefit the automotive industry and the environment.
It urged the government to act now and revise the reimbursement rates before the next budget, or face a backlash from millions of frustrated and underpaid business motorists.
