Monday, July 20, 2009



In my last blog I puzzled over how Sarah McCarthy-Fry, the Exchequer Secretary to the Treasury, could see a distinction between extending the scope of a tax and mitigating revenue losses when such mitigation was achieved by extending the scope of the tax.

I now realise that Ms McCarthy-Fry probably has a view of the world that is somewhat different to how most of us approach it. Accordingly I am now on the look out for her concepts.

Today’s offering is, “One effect of increasing the AMAPs rate would be to provide an incentive to those employees whose actual costs are less than the proposed 45p a mile rate to drive further in order to profit from the mileage reimbursement. That is not the purpose of the allowance, and it could lead to an increase in unnecessary driving and thus to an increase in overall carbon dioxide emissions, contrary to the Government’s environmental objective”.

For the benefit of those, like me, who had never heard of an AMAP, it stands for Approved Mileage Allowance Payment (I think). Mileage allowance payments were introduced on 6 April 2002. They are exempt from tax. They are amounts paid to an employee for expenses related to the employee’s use of his own car for business travel and are 40p a mile for the first 10,000 miles a year and 24p thereafter. Business travel is travelling, the expense of which would be deductible under ITEPA 2003, ss 337-342. Under s 337 the employee must be “obliged to incur and pay” the expenses as holder of the employment, and the expense must be “necessarily incurred on travelling in the performance of the duties of the employment”.

The Opposition proposed an amendment to the Finance Bill to increase the 40p to 45p a mile. Inflation since 5 April 2002 (using HMRC indexation allowance table) is a bit over 21%. A 5p increase on 40p is 12.5%. Accordingly it does not even cover inflation.

Ms McCarthy-Fry seems to think that if the government were to allow employers to increase their mileage allowance payments to their employees not even to reflect inflation, but to reflect only 60% of the effect of inflation, employees with small cars whose actual cost of fuel maintenance, depreciation and insurance amounts to less than 45p a mile would needlessly drive around, spewing carbon emissions into the air, in order to reclaim from the employer an extra few pence a mile. This in circumstances where they need to convince the employer that the extra mileage is “necessarily incurred” on the business journey! That is a pretty stiff test. If an employee takes a longer route when a shorter one was available, is the extra mileage “necessarily incurred”? Obviously Ms McCarthy-Fry believes that it is, as she envisions thousands of motorists driving necessary, but needless, miles to earn a few extra quid tax-free.

Personally I find it hard to understand how something can be both necessary and needless at the same time. Which just goes to show that I am not Ministerial material.

It’s good to know that Ms McCarthy-Fry is there to protect us from those who would otherwise be tempted to drive necessary mileage simply for the sake of it!



Post a Comment

<< Home