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HMRC are to hold further discussions in conjunction with the review of Employee Car Ownership Schemes (ECOS) and the interaction with company car tax and mileage payments, details of which were first announced in the 2006 Pre-Budget Report.

Broadly, it was announced in the 2007 Budget that the Government is considering the case for changing the structure of annual mileage allowance payments (AMAPS) to align the tax and NICs treatment, and "to ensure that the rates and thresholds are set at an appropriate level to promote environmentally friendly business travel".

In particular HMRC are now looking at whether:

• the rates and threshold can be adjusted to better reflect differing costs of drivers using their own cars for business;
• the structure can be changed to encourage drivers to be more environmentally aware, and
• the tax and NICs rules can be aligned for mileage payments.

Suggestions included in a new discussion document published by HMRC include:

Linking AMAPs to CO2 emissions - The suggested figures are:

• 50p per mile for cars within the 15% company car tax band or lower (currently 135g/km) up to 10,000 mile threshold;
• 40p per mile for cars within 16% - 25% band (currently 140-185g/km) up to 10,000 mile threshold; and
• 25p per mile for cars over the 25% band; all cars with no CO2 emissions and all cars over 10,000 miles.

Amending the rates and thresholds - It may be possible to amend the rates and thresholds to better reflect the differing needs and costs of drivers using their own cars for business mileage and to reflect, in particular, the high initial costs of drivers using their own car for business purposes. The following rates and thresholds are suggested in the discussion document:

• 50p per mile for 1,000 miles;
• 40p per mile for the next 5,000 miles;
• 25p per mile thereafter.

Or

• 50p per mile for 2,000 miles;
• 40p per mile for the next 4,000 miles;
• 20p per mile thereafter.

A combination of the two suggestions for a more composite approach - A further possibility may be to combine both a CO2 emission based approach with a change to both rates and thresholds, the aim being to provide an environmental incentive, whilst recognising the higher initial costs. This may look something like this:

• 55p per mile for cars within the 15% band or lower up to 5,000 miles;
• 40p per mile for cars within 16%-25% band up to 5,000 miles;
• 25p per mile for cars over the 25% band; cars with no CO2 emissions and all cars over 5,000 miles.

Current approved mileage rates are simply 40p for the first 10,000 miles in the tax year, and 25p per mile over that.

Related news

The taxation of company cars and mileage: Discuss

Links

HMRC: Approved mileage rates

HMRC: Further discussions on AMAPS