Ageing AMAPs: Is now the time for a shake-up?
08 May 2017
Author: Debbie Wood
A new consultation document from HMRC could raise questions on whether flat-rate expenses for mileage and fuel, such as the Approval Mileage Allowance Payment (AMAP), are still appropriate.
The document, issued last month, follows on from HMRC's two-stage travel and subsistence review (July 2014 to March 2015) and the Office of Tax Simplification's (OTS) January 2014 report on the tax treatment of employee benefits and expenses, which aims to bring expenses in line with current working practices.
Unlike the Advisory Fuel Rates (AFRs), which are reviewed every quarter, AMAP rates have remained unchanged since 2011, despite significant fluctuations over the past five years in fuel costs. AFRs are based entirely on the cost of fuel, whereas AMAP rates are designed to cover the majority of car running costs including depreciation, SMR costs, tax and insurance.
A proposed change to the current system would be welcomed by the British Vehicle Rental and Leasing Association (BVRLA), which believes that AMAPs in their current form can promote bad behaviours and are seen by many grey fleet drivers as an additional source of income.
"The AMAP payments are the only area of Government that don't attract tax in any real way and we think they should really be looked at and taken into the CO2 tax regime," said Gerry Keaney, BVRLA chief executive. "It's definitely seen as an earner and I can think of lots of recent examples where people are encouraged, incentivised even, to drive their own car. It promotes the wrong behaviours and is sending the wrong signal and we continually urge Government to bring them in line."
Association of Car Fleet Operators (ACFO) chairman John Pryor believes a more level playing field should be applied to both company car and grey fleet drivers.
"ACFO has called on the Government in the past to ensure that fleets have a level playing field and that the mobility for companies should be equal on the different forms of payments or charges," said Pryor. "Currently, AMAP is a flat fee and no other considerations are taken into account, whereas the fleet vehicle is taxed on its emissions, and is not paid on miles driven."
As it's believed that many drivers rely on the AMAP rates to compensate their salaries, David Bushnell, product manager at leasing firm Alphabet, is concerned that if the rates were reduced, drivers could start looking for other ways to reclaim the shortfall.
"There are lots of people who do not get a cash allowance and rely heavily on AMAP rates," stated Bushnell. "45p as a standalone figure does seem like a lot of money, but when you look at how much it costs to run a vehicle each year, it doesn't seem as unreasonable.
"If you start playing with these figures or reducing them then it could promote even worse driving behaviours. To avoid being out of pocket, drivers could try and make up the difference, whether it's neglecting maintenance or overstating business mileage."
The question of whether the rates are at the right level, or the 10,000-mile threshold is correct, is a complex one, and any change, according to Richard Cox, fleet consultant at vehicle leasing company Arval, could remove the simplicity of the system, which was a key reason for its inception.
"AMAP was always designed to be simpler than the Fixed Profit Car Scheme which it replaced, and there is no doubt that it can be something of a blunt instrument when it comes to compensating drivers for using their own car on business," he said.
Any change to the rates is likely to mean more paperwork for fleets and Cox suggested that it's not the rate itself that needs to change, but the mileage threshold - currently at 45p up to 10,000 miles and 25p thereafter.
"Depreciation and SMR costs are unlikely to be significantly affected by a small additional distance so the 45p cost could be seen as too generous for those travelling small amounts of miles on business," he stated. "I believe that there is a case for the threshold to be reduced from 10,000 miles but not a strong argument for a reduction in the rates themselves."
Businesses do not need to pay the full AMAP rate, though, as drivers can reclaim tax relief for the difference, which according to HMRC is now costing the Exchequer £800m each year. At this stage the Government is just calling for evidence to see how new tax rules could be developed.
The deadline for responses to the consultation is 12 June 2017 and fleets are being urged to contribute evidence via HMRC's website.