The mechanics of car mileage reimbursement
Mileage reimbursement is not solely about fuel costs. If it were then reimbursement would be in the region of 18 pence a mile. If you look at reimbursement as solely to cover fuel costs then everyone’s costs would be covered at all times as all NHS rates are in excess of fuel cost per mile.
Rises in the cost of fuel do not give a proportionate increase in the cost of motoring per mile. For example 12 gallons of fuel at £6.35 a gallon and a vehicle doing 40 miles per gallon gives a cost per mile of 15.87 pence. If fuel rose by one pence to £6.36 pence the cost per mile would rise to 15.90 pence – an increase of 0.03 pence a mile. It is of course possible that fuel costs could rise but the other costs of motoring might fall and vice versa. This would result in overall mileage costs remaining static although there may be increases or decreases in some elements. Since the last change to NHS rates (July 2008) fuel has ranged from 1.20 a litre to 85 pence a litre and then has been as high as 1.40 pence.
Mileage reimbursement is intended to reflect the overall costs of using your car for work. That is to reflect the costs associated with fuel, depreciation (a major cost item for owners of new vehicles), tax, insurance, maintenance and other similar items. However it is not the case that such a system could cover the costs of all users in all circumstances. What it is intended to do is reflect the average vehicle – probably a four door "family" vehicle with an engine capacity of about 1600cc.
Whether your costs are being met will depend upon your own particular circumstances; is your car new or old, does it have a high or low purchase price, do you own it outright or are you in a car loan arrangement, does is it have a small or large engine capacity, how many miles per gallon/litre does it do, is it petrol or diesel, how many business miles do you travel and whether you buy your fuel from a "forecourt garage" or a supermarket.
So in coming to a view as to whether the costs of motoring on NHS business have been met car users will want to consider whether the total sum they receive from the NHS covers their costs. Using the example a regular user with a 1600 cc vehicle and travelling 3000 business miles will want consider if the £2080 per annum (£173 per calendar month and 69 pence a mile subject to tax) they receive covers their costs. For standard users the question will be whether the £1749 (£145 per calendar month and 58.3 pence a mile subject to tax) they receive covers their costs. Alternatively in this example if their NHS mileage was 50% of their total annual mileage then they might ask has my NHS reimbursement covered half of the costs of running my vehicle in the year.
Where reimbursement meets cost then the user has "broken even". Where the reimbursement is less than costs then the user has suffered a loss and where reimbursement is in excess of costs then they have gained some benefit.
If it is the case that a car user believes that (having considered all of the above) they are still "out of pocket" in using their car for work then they should raise the issue with their line manager and discuss arrangements to limit the amount of business miles that they do.
The HMRC (formerly the Inland Revenue) have an approved mileage allowance payment system (AMAP). This allows any payment to someone using their car for work up to 45 pence a mile (for the first 10,000 miles) to be tax free. Reimbursement above this level will be taxed on the excess while those who receive less than 40 pence will be eligible for tax relief.
For further information, please go to Mileage rates for March 2012 (Word 56KB).