Increased motoring costs should prompt mileage allowance review, says ICAS

1 August 2008

The rising cost of motoring should be reflected in higher mileage allowance for employees who use their own cars for work, according to the Institute of Chartered Accountants of Scotland (ICAS).

At present, employees can reimburse their staff for business travel at a rate of up to 40p per mile, for the first 10,000 miles each year, after which the rate drops to 25p. Any reimbursement above this level would be subject to taxation.

ICAS has argued that higher road tax, higher fuel costs and increased depreciation for larger cars – as a result of policies aimed at cracking down on “gas-guzzlers” – mean that the true costs of motoring have outstripped the allowable rates. The Institute’s research shows that for a typical family saloon, the true cost is more like 65p per mile.

The current rates, set back in 2002, need to be reviewed urgently, ICAS said, and the Institute recommends that 65p per mile for the first 10,00, and 40p after that, would more fairly reflect the cost to the employee.

Derek Allen, Director of Taxation with ICAS, said: “In principle, it is wrong to penalise financially any individual on money which they have had to spend exclusively and necessarily in doing their job. At present, that is exactly what is happening with mileage expenses.”