The mechanics of car mileage reimbursement
Recent increases in fuel have concentrated the mind of those who use their own vehicle to undertake their employers business. Fuel has now reached approximately £1.20 a litre – about the same level it was when the 10% increase in NHS allowances was made in July 2008. Between July 2008 and March 2010 fuel prices have been below the summer 2008 level. Despite this fall in the fuel element NHS mileage reimbursement levels remained at their July 2008 level.
At present the NHS Staff Council is looking at a new model of mileage reimbursement that may reflect more accurately the changing costs of motoring. This will be considered by the Staff Council in July.
However mileage reimbursement is not solely about fuel costs. If it were then reimbursement would be in the region of 14p 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 well 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 £5.50 a gallon and a vehicle doing 40 miles per gallon gives a cost per mile of 13.75 pence. If fuel rose by one pence to £5.51 pence the cost per mile would rise to 13.775 pence – an increase of 0.02 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.
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 (£173pcm and 69p a mile subject to tax) they receive covers their costs. For Standard Users the question will be whether the £1749 (£145 pcm and 58.3p 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 ‘broke 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 40 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. Dr Peter Carter wrote to the Chancellor in 2008 arguing for an increase in the AMAP level at a time when fuel prices were high. However having reviewed the AMAP level (which applies to all who use their vehicles for work and not just public sector workers) the HMRC declined to increase the level further. This was also despite there being some significant lobbying from some groups that it should be reduced in order to reduce overall car usage and to help meet carbon reduction targets.