Fleet News

New mileage rates cause rethink over cash for cars

FIRMS which have opted out of providing company cars could be forced into a costly U-turn after Chancellor of the Exchequer Gordon Brown made cash for car and personal leasing schemes less attractive. Budget changes to Inland Revenue Authorised Mileage Rates from April 6 next year slash the cash paid to employees clocking up business mileage in their own cars with engines of 2.0-litres or more by as much as 30%.

Drivers who have opted for cash for car schemes use the rates as part of a calculation for how much money they should be paid by their employer to cover the cost of funding a private car. But drivers of a 2.0-litre or over car covering about 20,000 miles a year will see their income from the mileage rate repayments slashed from £8,280 to £6,500 next year, a drop of 22%.

While the new system benefits the drivers of smaller-engined cars, who see significant increases in their income, the only way to escape the fall for affected drivers is to move into a smaller-engined car, demand a cash top-up from their employer or move back into a company car. The Inland Revenue is adamant that the number of company cars will increase in the next few years by about 200,000, but some tax experts and leasing firms say there could be a massive fall.

Alison Chapman, a tax partner with Deloitte & Touche, said: 'If employees made a free choice to take cash instead of a company car, then an employer might be able to say they will not provide a cash top-up. But companies that effectively pushed drivers into tax-efficient structured personal leasing schemes, where the company makes all the savings and staff are in a neutral position, could be in a difficult situation, as staff will not accept being worse off.'

  • Still baffled by the Budget? We have a few places left for tomorrow's Budget Briefing at Sopwell House, St Albans, where a panel of fleet experts will take you through the key changes. Call Sandra Evitt on 01733 468123 to reserve your place.

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