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AMAP rates to be Budget target

Date: 20 March 2007   |   Author: Tristan Young

AMAP rates are believed to be likely to change in Wednesday's Budget in order to curtail the use of employee car ownership schemes.

Authorised mileage allowance payments (AMAPs) govern the amount an employer can pay a driver for using their own car on work business. ECO schemes use these AMAPs to make their systems more tax attractive to some employees than a traditional company car schemes.

However, because the Government believes these schemes are encouraging higher CO2 cars it is looking to clampdown on them.

In the 2006 Pre-Budget report the Chancellor said: "HMRC has undertaken extensive discussions with business which have indicated that: there are a number of different ECOS, some of which have been designed to provide an ongoing benefit to employees that is currently not taxed or subject to NICs; and the carbon emissions of an average ECOS car are around 20g/km higher than an average company car.

"Furthermore, there is a noticeable interaction between the tax treatment of ECOS, tax-free mileage allowances and rates of company car tax, which may have contributed to the popularity of ECOS."

The report added: "HMRC will hold further discussions with industry in early 2007. Following these discussions, the Government will consider whether changes are necessary in order to strengthen environmental incentives and protect Exchequer revenues."

Tax and finance specialists Grant Thornton are predicting AMAP rates will be hit in the Budget.

Clive Fathers, tax partner, said: "The new company car scheme saw a massive reduction in company car fleets and an increase in companies and employees moving towards ECOS.

"HMRC did not anticipate this shift in ownership and with large numbers of cars purchased through ECOS thought not to be environmentally friendly and, therefore, contrary to the environmental change to the car benefit rules, car ownership schemes facilitated by employers are now under the spotlight. It is already a complex system which can unexpectedly pull companies into unseen tax liability and it is possible that there will either be a tightening of legislation in this area or an announcement to consult on restructuring the system."