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Insight: Shrinking your grey fleet costs

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Mileage reimbursement rates for drivers doing business journeys in their private cars (the grey fleet) is an issue that
organisations are reluctant to tackle.

Public sector organisations find it most difficult to address reimbursement rates. Many have historic agreements or follow guidance from certain bodies that mean they pay more than the 45p per mile (for the first 10,000 miles) recommended by the Government.

The potential savings from reducing reimbursement rates to the Approved Mileage Allowance Payments (AMAP) could run into thousands of pounds.

But cutting the rate effectively takes money away from employees.

So how do cash-strapped public sectors go about reducing reimbursement rates? And can the private sector learn from their experiences?

“An organisation could simply make an executive decision to pay a different rate,” says David Watts, fleet partnership manager at the Energy Saving Trust.

“But this may not work. The perception is that mileage reimbursement forms part of the salary package and reducing it is likely to get a negative response.

“You could get people saying, ‘I’m not going to use my car for work’ or ‘you’ve been paying me this for x number of years, why have you cut it? My costs haven’t gone down, my costs have gone up’. It’s a high-risk strategy.”

However, staff may not be aware that they have to pay tax and National Insurance on any reimbursement above 45p per mile.

Likewise, if a company reduces its AMAP rate to below 45p per mile, employees can claim tax relief on the difference (the Mileage Allowance Relief).

Hitachi Capital Vehicle Solutions head of sales Mike Belcher recommends reducing rates in line with the much lower Advisory Fuel Rates (AFRs) paid to company car drivers.

“By doing this and allowing the Government to pick up an element of the difference between the AMAP rate and the AFR, organisations will enjoy large mileage reimbursement rates savings,” he says.

Companies need to be aware of unions, who could “scupper any plans”, according to Watts. “Get the unions on board sooner rather than later,” he says. “Explain to them the need to reduce costs.”

One tip is to ask the unions for their own policy on paying staff for using their own cars for work purposes: it’s unlikely to be as generous as some public sector schemes.

Those organisations the EST has worked with that have successfully reduced mileage reimbursement rates have done so as part of a ‘wider change programme’. This means bringing in alternatives to the grey fleet.

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  • Alastair.kendrick - 26/09/2013 11:41

    Sorry but this article seems to over simplify the issues and gloss over the tax position. Public sector workers operate what is called the fixed profit car arrangement so they provide a list each year of the taxable element of the allowance paid which gets coded out in most instances. The question is does the AMAP rate give enough to reimburse costs incurred on business travel. This comes down to if figures are on marginal or apportioned costs. If on the latter ( which is the basis adopted by HMRC in setting the rates) then the current HMRC rates are unlikely to cover the drivers costs unless employee is driving a low emission vehicle.

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