Chancellor Answers ACFO's Budget Call For Fleet Stability
Published: 19th March 2005
But, ACFO renews call for wholesale business mileage reimbursement review
The call for fiscal stability for the fleet industry from ACFO, the UK’s leading organisation representing car and van fleet operators, was answered in the affirmative by Chancellor of the Exchequer Gordon Brown in his 2005 Budget.
With a general election in the offering, ACFO had called on the Chancellor not to introduce short-term fleet measures to court popularity.
ACFO director Stewart Whyte said the decision to freeze company car tax for 2007/08 and the decision to hold the company car fuel benefit charge at £14,400 indicated that the Chancellor and his Treasury team had listened to the organisation.
He said: ‘Fleet operators must have a realistic time-frame against which to plan their strategies. Major reviews to fleet policies normally only take place every five to eight years and we had urged the Chancellor not to rock the boat for political expediency.
‘If HM Treasury keeps changing the major factors involved in fleet planning, companies will face huge internal policy realignment, aggravation and costs.’
Mr Whyte said that the Chancellor’s decision to raise the two highest VED bands by £5 and changes in VAT fuel scale charges would not seriously impact on corporate fleet policies. Meanwhile, the changes to the benefit-in-kind taxation on alternatively-fuelled vehicles amounted to little more than simplification and tinkering, which is unlikely to result in any significant surge in fleet sales.
However, Mr Whyte said that ACFO was disappointed that the Chancellor did not announce a wholesale review of business mileage reimbursement rates. The organisation has repeatedly called for the Inland Revenue to review the tax-free Approved Mileage Allowance Payments (AMAPs) system for employees who use their own cars on business.
ACFO believes that these over-generous tax-free mileage allowances are encouraging the take-up of cash for car, personal contract purchase and employee car ownership schemes. ACFO firmly believes that running a fleet should be based on a genuine business case and not just on driver tax-efficiency. Importantly, for the millions of drivers who have never been within the scope of a company fleet system, the high levels of tax-free allowance provide a perverse incentive to clock up ‘unnecessary’ business mileage.
Currently employees using their own vehicle on business can claim up to 40p a mile tax free on the first 10,000 miles clocked up and 25p a mile tax free thereafter.
Last year an ACFO survey showed that approximately 80% of drivers opting out of the company car and taking a cash option selected vehicles that were no cleaner, or were less environmentally-friendly, than the company-provided vehicle.
‘However justifiable in personal terms, this attitude can do nothing to support Government initiatives or reduce vehicle emissions and/or car use. Tax efficiency for drivers should not be the main factor in determining a company’s fleet policy,’ said Mr Whyte. ‘The current structure encourages many drivers of their own vehicles to undertake unnecessary business mileage, simply because it is so lucrative. We will continue to press for a widespread review.’
ACFO wants the review to also include the Inland Revenue’s advisory fuel rates for company cars, which apply where employers reimburse employees for business travel in their company cars, or require employees to repay the cost of fuel used for private travel.
Since January 2002 the mileage rates have been set at 10p per mile for petrol cars and 9p per mile for diesel cars up to 1400cc; 12p and 9p respectively for cars of 1401cc to 2000cc and 14p and 12p for cars above 2000cc.
But, says ACFO, since those rates were set there has been a spate of fuel price rises which has had a massive impact on employees driving on business purposes as well as motorists in general.
The Inland Revenue set the rates based on unleaded petrol costing 77p a litre (350p per gallon) and diesel costing 78p per litre (354.6p per gallon). However, the Inland Revenue says it will review the rates during a tax year when fuel prices vary by more than 10% from the prices that were used when the rates were calculated.
Mr Whyte said: ‘The Inland Revenue promises to review the rates if fuel prices increase by 10%, but it has not done so. It stresses that the structure of the rates are ‘advisory’, but within ACFO, we have had several members report difficulties with some tax offices, which appear to take the rates as ‘statutory’ rather than as ‘advisory’. It is for this reason that we want a comprehensive review.’
