Staff being ‘left out of pocket’ by 12-year freeze in mileage rates

14/07/2023

PEOPLE who drive their car for work are being short-changed because the Government has not updated mileage rates for more than a decade, according to a report.

Analysis by the RAC Foundation found employees should be entitled to around 63p per mile tax-free when driving their own cars during work. 

However, the rate, which is set by the Treasury, has been frozen at 45p per mile since 2011 despite large increases in motoring bills and inflation since then.

The discrepancy means someone driving an average of 5,000 miles per year for work is receiving £900 less than they should, according to the group.

The RAC Foundation analysis was based on Office for National Statistics figures showing the cost of motoring was 41% higher in April compared with the same month in 2011.

Cost rises affecting drivers over that period include tax and insurance (up 183%), maintenance (up 48%), vehicle prices (up 16%) and fuel (up 12%).

RAC Foundation director Steve Gooding said: “We know that some of our most important workers – those employed in health and social services, and in supporting roles – are being left out of pocket by the failure of ministers to sanction an uplift in the amount per mile they can receive tax-free for getting around to do their job.

“These aren’t board members and well-paid executives in new saloons, but key workers in five to 10-year-old cars who can ill afford to be subsidising the rest of us for the cost of carrying out their critical roles.

“Tax cuts might be off the Prime Minister’s agenda for the time being but, surely, fair tax treatment for these key workers should be a significant concern for the Chancellor in the face of a recognised cost-of-living squeeze.

“We think the Treasury should commit to an urgent review of the mileage rate and not leave it another decade before revisiting it again.”

Employers can pay their staff whatever they want when reimbursing them for driving for work in their own cars, but many use the 45p per mile rate to avoid tax implications.

A Treasury spokesperson said: “Whilst employers can reimburse at a higher level, the Approved Mileage Allowance Payments aim to reflect the average costs of running a vehicle, which in turn helps keep the administrative burden low and reimbursing simple.

“As we work to bring down inflation, we have also taken decisive action worth £94 billion to support drivers with the cost of living, which is worth £3,300 on average per household over this year and last and includes a two year 5p fuel duty cut worth £200 for drivers.”

The latest stories