Approved Mileage Allowance Payment Rate

Gareth Davies Excerpts

Monday 3rd July 2023 Westminster Hall

[The Exchequer Secretary to the Treasury (Gareth Davies)]

It is always a pleasure to see you in the Chair, Mr Sharma, and it is a great honour to serve under your chairmanship. This is an incredibly important subject, and I will do my best to address all the many points that have been made in some fantastic speeches. I congratulate my hon. Friend the Member for Carshalton and Wallington (Elliot Colburn) on introducing the debate on behalf of the Petitions Committee, and thank everybody who signed the petition.

The Government, right up to the Prime Minister and the Chancellor, are absolutely committed to supporting individuals and businesses with the rising cost of living. That includes motoring expenses. Let me respond to the various points by first setting out what AMAPs actually are, the rationale for their existence, and how they work. Then I will talk more broadly about how the Government are supporting people, because hon. Members have rightly asked about that on behalf of their constituents.

As we have heard in this very good debate, approved mileage allowance payments, or AMAPs, allow employees to receive tax-free reimbursement from their employer when using their own vehicle for business journeys. The rate for cars and vans is currently set at 45p per mile for the first 10,000 miles travelled annually and 25p thereafter. The AMAP and simplified expenses rates are designed as tax simplifications, as my hon. Friends have pointed out. They are intended to make it to easier for employers, employees and small businesses to record their mileage and calculate how much tax relief is due.

Simplification is at the heart of this. It is a key objective of the overall tax system, and the Government want the tax system that we oversee to be simple and fair, and to support growth wherever possible. The AMAP and simplified expenses rates are a long-standing tax simplification measure that helps us to achieve that simplification objective. Rather than having to work out a business or employment proportion of all their individual motoring costs, the rates allow taxpayers to make a simple calculation based on their business mileage to work out how much tax relief is due. The rates form the basis of a single calculation that can take the place of multiple calculations that would otherwise be required, which would be administratively taxing.

Because the single rates are much simpler than an alternative calculation of actual expenses, there will always be a trade-off between accuracy and simplicity for motorists who use the rates. The rate may reflect the actual costs of motoring better for some than others—we completely accept that. In some cases, it may provide slightly more relief than the actual costs would; in others, it might provide slightly less. That will depend on factors such as fuel efficiency, the car’s size, driving conditions and the level of associated costs such as insurance. Tax simplification is an ongoing priority for the Government and, frankly, AMAPs helps us achieve that.

Ultimately, however, as several colleagues have pointed out, the AMAP rate is not mandatory. Employee and employer expenses are a matter for individual employers and voluntary organisations to determine. It is up to employers to determine the remuneration and expenses for their employees.

My hon. Friend the Member for Stoke-on-Trent South (Jack Brereton) rightly raised the issue of employees who receive less than the AMAP rate from their employer. Those people can claim mileage allowance relief on the difference, as HMRC provides. That reduces the tax that they can pay, and I urge my hon. Friend’s constituents to look into that in more detail.

[Abena Oppong-Asare]

As the Minister mentioned, the allowance offers relief whereby individuals can claim money back. Do the Government have figures on how many people are using the relief? It would helpful to know that.

[Gareth Davies]

That is a very reasonable question. I do not have the figures to hand, but am happy to provide them if we are able to. I also point out that employees paid expenses above the AMAP rate may be taxed on the difference, depending on their personal circumstances—if they earn in excess of the personal allowance, for example.

As my hon. Friends the Members for Carshalton and Wallington and for Waveney (Peter Aldous), as well as several others across the Chamber, have outlined, volunteers are an important part of our communities and perform incredibly important services for all of us. It is right that they be highlighted and recognised in the debate today. The Government recognise the outstanding contribution that all volunteers and the charities that employ them make to our communities, including my community of Grantham and Stamford.

I should reassure hon. Members that, unlike employees, volunteers can receive payments in excess of the AMAP rate and do not have to pay tax if they can provide evidence that they have not made a profit. If they provide the receipts and evidence of their travel, they do not have to pay tax above the AMAP rate, unlike employees. That provides volunteers and voluntary organisations with additional flexibility, given how important they are. And they are important to the Government—that is why, for example, at the spring Budget the Chancellor set out an additional £100 million support package for charities and community organisations in England. That will be targeted at voluntary, community and social enterprise organisations at most risk at this difficult time. We will be setting out more about the eligibility criteria in due course, and hon. Members may wish to monitor that carefully.

[Peter Aldous]

That was an interesting point, and I just need to digest what the Minister was saying. I think he was saying that volunteer drivers can claim extra tax relief provided that they can show that they are not making a profit. Does he have any figures showing how many are actually doing that? I suggest that the system is so complicated that very few take it up. It would be far simpler to increase the rate.

[Gareth Davies]

The point I would make is that volunteer organisations do not need to use AMAPs; all that is required are receipts and evidence of journeys. Volunteer organisations can set literally any rate as long as that evidence is shown. The AMAP is a simplified rate and applies to employees of private organisations and businesses, for example.

I want to address the review period and the regularity of reviews, because they were mentioned by a number of colleagues. They make a fair point, but I would point out that by its very nature AMAP is a tax relief, as is mileage allowance relief. It is convention that they are reviewed at fiscal events, in line with most taxes we have, but it is also important for the work that we do with the Office for Budget Responsibility, so that it can score during the Budget process. That is why the reliefs are always reviewed. I assure hon. Members that there is a review at every fiscal event, and it is right that it is done at fiscal events and not in the middle of the fiscal events cycle.

A couple of Members mentioned self-employed individuals, so let me quickly address that issue. Self-employed individuals can choose to use simplified motoring expenses, which allows them to deduct a fixed rate per mile against their self-employed profits, and those rates mirror the AMAP rates. Self-employed individuals do not have to use the rates; they can instead choose to deduct capital allowances and actual costs. However, it is not possible to switch between the two options with the same car or van once a self-employed individual has chosen to use either the simplified mileage rate or the capital allowances and expenses. I hope that clarifies the position: they do have that choice.

Some hon. Members rightly talked about the cost of living situation in which we find ourselves. I want to directly address that now, because AMAPs are one part of our system to support employees across the country, but it is important to recognise the other measures that the Government are taking to support people at this very difficult time, and that is part of the review process when we look at AMAPs. I simply reiterate the point that many hon. Members have made today: in the spring Budget, the Chancellor announced continued support for both households and businesses by extending the temporary 5p fuel duty cut and cancelling the planned inflation rise for 2023-24. That represents a saving for all drivers across the country, amounting to £5 billion, which is about £100 per household.

In addition, at the spring Budget we went further by extending energy support, because we know that inflation has been a real problem for many households across the country. We kept the energy price guarantee at £2,500 for three months from April, saving households an additional £160 and bringing total Government support for energy bills to £1,500 for a typical household since October 2022.

Alongside that, we have gone even further and helped to support households by ending the premium paid by over 4 million households using prepayment meters across the United Kingdom. We have also introduced 30 hours of free childcare per week for working parents with children aged nine months to three years in England, alongside a substantial uplift in the hourly rate paid to providers and market reforms. That is in addition to the benefits uprating and support for vulnerable households across this country that we announced at the autumn statement, which included new cost of living payments for this year and next, helping more than 8 million UK households on eligible means-tested benefits, 8 million pensioner households and 6 million people across the country on disability benefits.

Taken together, we have provided £94 billion-worth of support to help households with higher bills, or an average of £3,300 per household, across 2022-23 and 2023-24. That is one of the largest packages of support in Europe, but as the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) pointed out, high inflation is the greatest immediate economic challenge that we face. That is why the Prime Minister has set it out as one of his top priorities, and it is why we in the Treasury have set out a clear plan to reduce inflation.

[Abena Oppong-Asare]

I thank the Minister for his generosity in giving way, and his time. Given that over 40,000 people signed the petition and many have raised the issue, will the Treasury look into it? Will the Minister indicate whether work is already being done behind the scenes? Has the Treasury been lobbied directly on changing the mileage scheme, because I know Unison and other stakeholders have done some work on the matter? I would be keen to know if any meetings or engagement have taken place.

[Gareth Davies]

That is a fair question. I assure the hon. Lady that an extensive review is taking place, which takes into account a range of factors, but a big part of it is engagement. We have engaged extensively with various industries and unions, and we will continue to do that around the fiscal event cycle, as I have said. All taxes remain under review.

I have magically received an answer to the hon. Lady’s earlier question: between 1.8 million and 2.1 million people use their own vehicles for business travel, and 200,000 employees claim mileage allowance relief. That is 40% of all those entitled to it. I hope that answers her question.

I am coming to the end of my remarks, but I want to ensure that I address as many points raised as possible. My hon. Friend the Member for Waveney made points about the importance of NHS staff, and I want to put on record my thanks to all NHS workers who use their own cars. I entirely agree with the emphasis he put on the importance of those workers to our society. I stress that paying the AMAP rate is voluntary. It is up to the NHS as an employer to determine expense rates. Travel cost reimbursement is covered by NHS terms and conditions, jointly agreed between trade unions and the employer. As my hon. Friend the Member for Darlington (Peter Gibson) pointed out, as of January 2023, the NHS increased its rate above the AMAP rate to 59p for cars up to 3,500 miles, in recognition of the fact that a number of NHS workers travel a shorter distance.

[Peter Gibson]

I am grateful for the clarification. Will the Minister clarify why it is right and fair for that scheme to apply in the NHS, but not outside it?

[Gareth Davies]

As I said, the scheme is voluntary. Any organisation can apply a higher rate than the AMAP rate, and the NHS has chosen to do that. If my hon. Friend believes that other organisations should offer a higher rate, that is something he should take up with them.

[Peter Gibson]

I am grateful to the Minister for giving way again. Will he outline what tax consequences there would be if an organisation chose to take those higher rates?

[Gareth Davies]

If a rate is provided that is above the AMAP rate, national insurance and income tax would be applied to that difference, depending on the personal circumstances of the individual—for example, depending on the overall amount of income tax they pay, or whether they are over the personal allowance amount. Voluntary organisations, which my hon. Friend spoke about, can offer any rate they want, as I pointed out to my hon. Friends the Members for Waveney, and for Carshalton and Wallington. So long as evidence is shown for the journeys, organisations do not have to use the AMAP rates. I hope that clarifies things.

In conclusion, it is ultimately for employers to determine the expenses paid in respect of motoring costs that employees incur with their private vehicles. The Government set AMAP and simplified expenses rates with the aim of creating administrative simplicity. Those rates will necessarily be more appropriate for some motorists than others. However, the Government have taken decisive steps to support households with the costs of living, which I have extensively set out. The Government will continue to keep AMAP and simplified expenses rates under review, as they do all taxes and allowances.

[Peter Aldous]

I have listened very carefully to my hon. Friend and I thank him for his response, but would he not agree that, over the past decade, there has been a societal change in the way that community transport has become a vital component of our public transport system, and in the way that health and social care is delivered? Health and care workers often go to people’s homes now, rather than those people coming to hospitals. That in itself warrants a fundamental review of the system.

[Gareth Davies]

My hon. Friend was just in the nick of time, but he makes a valid point. I will answer that in two parts. On care providers, the rate paid is a matter for the employer. It is entirely up to them, in the light of changes to how care is provided, to offer a rate that they deem appropriate; as I say, the NHS has offered a higher rate for those travelling fewer than 3,500 miles.

My hon. Friend made a broader point about the importance of community organisations, and mentioned community transportation. Those organisations are a vital part of our communities, particularly in constituencies like mine, in rural parts of the country. That is why this Government have got behind voluntary and community organisations. As I say, we recently announced another £100 million of support to specifically target charities and community organisations. That support will remain, just as it has for many years.

I am grateful for all the contributions and interventions from my hon. Friends, and from colleagues from across the House. This is an important debate to have, and I am pleased to have addressed the issue on behalf of the Government.