Reducing vehicle mileage allowance payments is not the answer to a greener Great Britain

August 2007

Proposals by the HM Revenue and Customs (HRMC) to link approved mileage allowance payments to CO2 emissions may leave many businesses facing increased costs and an administrative burden but do little to help the environment, according to the Chartered Institute of Personnel and Development (CIPD).

Charles Cotton, CIPD Pay and Benefits Adviser says: "While the CIPD encourages initiatives to improve the UK and global environment, we believe that the HM Revenue and Customs proposal to link approved mileage allowance payments (AMAPs) to CO2 is not an effective way of achieving this. All that will happen is that many small and medium sized employers will face more admin hassle and increased costs, and employees will be penalised for using their car for business. If HMRC wishes to encourage the driving of lower-CO2-emission-vehicles then this could be better achieved through other initiatives, such as differentiating bands of vehicle excise duty."

The CIPD does not support the proposal for the following reasons:

As the proposal would effect all employees, not just car eligible, there would be reluctance by some individuals, especially lower graded staff, to use their own cars for business journeys if the actual cost is not fully reimbursed, as for example the (illustrative) 25p per mile top rate for high CO2 vehicles would leave little towards the cars other running costs.
Employer costs could be increased due to the cost of hire cars and CO2 emissions would be left in the hands of hire car providers.
It would place an administrative burden on employers as they would have to use different payment rates for different cars - it would be an imposition on those employers who reimburse the occasional business user as most do not routinely keep a record of the individual�s car type and CO2 emission.
If individuals do not know what the CO2 emission of their vehicle is then they may not bother providing the information or provide incorrect information. Some individuals may be tempted to claim the highest mileage reimbursement rate and employers would not be able to easily check whether it is correct.
There would also be the difficulty associated with employees changing their vehicle part way through the tax year when the cars are in different bands.
Linking rates to the CO2 emission table for the taxation of company cars could mean that computer software may need to be changed on an annual basis, possibly causing ongoing technology costs for a number of employers.
Artificially high mileage rates for low CO2 vehicles could lead to pressure on employers to pay the maximum rate and so the cost of such an "incentive" would fall on the employer. It would not be such an "incentive" if the employee had to claim tax relief. For example, if only 40p were continued to be paid by the employer, instead of the (illustrative) 50p rate, then on say 5,000 business miles the tax relief on the extra 10p would only amount to a credit of £110 (22% taxpayer) instead of being paid the extra £500 by the employer.