HM Revenue and Customs caught some bad press in a Sunday newspaper recently over its proposed overhaul of the AMAPs tax-free mileage payments…

4 June 2007: Taxing questions

HM Revenue and Customs caught some bad press in a Sunday newspaper recently over its proposed overhaul of the AMAPs tax-free mileage payments.

“Unfair” responded HMRC, claiming the pence per mile figures in its discussion paper were never meant to be taken seriously.

Since a lot of people think the AMAPs system isn’t broken and doesn’t need fixing, this might appear to be merely a storm in a teacup. But is it? To find out for this week’s blog, I headed over to check the latest statistics at the HMRC website.

It doesn’t take long to see where HMRC is coming from in its review of ECO schemes and allowances. There are now 330,000 more drivers on mileage allowances than there were in 2002, but they pay £40 million less tax.

This is not some small statistical anomaly. 330,000 represents a 143% increase in the number of drivers taxed on allowances. Back in 2002, HMRC collected £100 million from mileage allowances so by rights it should now be pulling in £243 million.

Instead, its latest estimate (for 2005-6) is just £60 million.

The statistics data shows 560,000 drivers paying BIK on these allowances. A quick calculation says the average driver thus pays less than £9 a month for the benefit. In 2002, it was £36.

Thanks to tax efficient car schemes, many fleets and drivers are now smarter about paying as little tax as they need to for car benefits. HMRC makes no secret of the fact that one goal of its review of ECOs and allowances is to maintain its revenues from the fleet sector.

Perhaps it’s looking in the wrong direction.

Per capita revenues from company cars haven’t collapsed as they have with mileage allowances. BIK due on allowances has crashed down by 70% but company car tax liability has remained steady, at an average of just under £100 a month per driver, for five years.

Moreover, other statistics from the HMRC show that CO2 levels from company cars have improved significantly (unlike those of non-ECO opt-out cars, which tend to be older and more polluting).

Yet the number of company car drivers continues to dwindle. It’s fallen by 350,000, to 1.2 million, since 2002, cutting £460 million from HMRC’s annual receipts from car BIK.

Overall, the annual tax take from company car users and mileage allowance recipients has fallen by 24% since 2002 even though the total number of taxed individuals has remained unchanged.

But even if HMRC succeeds in restoring the tax rates on mileage allowances to 2002 levels, it will need three new mileage allowance users to make up for the revenue lost with every company car that disappears.

Surely the simplest, greenest, safest and most fiscally advantageous solution would be to encourage more drivers to go for the company car option.

That should also suit employers, who are concerned about the risks of drivers using their own cars on business – and who now question the probable extra red tape involved in administering CO2-linked AMAPs.

A win-win for the taxman and for fleets? It could be