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NHS Agenda for Change mileage allowance information

This page explains the changes made to Agenda for Change (AfC) mileage allowances from July 2014.  There are frequently asked questions (FAQs) at the end of the briefing.

AfC mileage allowances apply to all NHS staff employed on AfC contracts. They also apply to staff employed on non-AfC contracts who have AfC mileage allowances built into their contracts.

These arrangements cover payment for using your vehicle for work which is reimbursement for the extra costs incurred in using your vehicle on your employer’s business.

The key element of these arrangements is that there will be a regular check on the cost of motoring undertaken by the NHS Staff Council. The level of reimbursement will reflect the cost of motoring.

NHS mileage allowances are covered by Section 17 of the Agenda for Change handbook.

Key elements of Section 17 (effective 1 July 2014)

  • 54p per mile for all car users irrespective of engine size up to 3,500 business miles and 20p a mile thereafter
  • An annual calculation of motoring costs and a twice yearly calculation of fuel costs
  • 27p Reserve Rate (formerly public transport rate)  
  • The full mileage rate to be paid on journeys for training.
  • Pedal Cycle 20p a mile
  • Motor Cycle rate 50% of the single rate (27p)
  • Carrying bulky equipment 3p a mile.
  • Passenger allowance 5p a mile
  • The single rate calculation is also used for reimbursing staff for attendance at required training courses. Previously this travel was reimbursed at the lower Public Transport Rate.

Mileage Reimbursement

Mileage allowances are paid to cover the extra costs of using a vehicle that you own and maintain, on your employer’s business. They do not reimburse for fuel costs alone nor are they a payment towards the purchase of a vehicle to undertake work.

The reimbursement is made irrespective of the type or age of the vehicle and is intended to reimburse the average car and driver. It cannot be guaranteed that reimbursement will cover all the extra costs incurred by drivers, but it is a meaningful contribution towards the extra costs of using a vehicle for work.

This means that for some people, reimbursement could be above the actual extra cost incurred. In some cases it will be equal to the extra cost and in other cases it might be below.

Over many years, NHS staff have been concerned that there has been no process to accurately reflect the changing cost of motoring and that changes only took place occasionally. Since 2013, all motoring costs are considered annually and fuel costs twice a year.  

  • If the overall cost of motoring rises by 5% or more then the reimbursement will rise.
  • If it reduces by more than 5% then the reimbursement would reduce.

If you believe that the level of reimbursement you receive, after considering all the costs you have incurred, and balanced against the effect of any tax relief received results in you being out of pocket, then you should talk to your manager about how work can be organised to ensure that you are not undertaking excessive travel in the course of your work.

Some employers are now developing arrangements where some travel can be undertaken by public transport, hire vehicle or through the use of a pool car system operated by the employer.

Why were the changes made in 2013?

The arrangements address a number of problems in the previous system:

  • the incentive to travel maximum miles for maximum reimbursement
  • the wide range of reasons why someone might be on regular, standard or public transport rates
  • larger engine vehicles, travelling more miles, get greater reimbursement compared with that of greener (or smaller engine) vehicles travelling fewer miles
  • the wide range of reimbursement: For example a regular user in a 1600cc vehicle driving 4,000 miles received 63p a mile while a Standard User in a 1000cc vehicle driving the same distance received 35p a mile – a difference of £1,122 a year
  • the reactive nature of looking at reimbursement rates only when fuel costs rise.

The cost of fuel

Fuel costs have risen in recent years, but fuel is only one element in the cost of motoring. It is possible that fuel costs rise but other costs fall, meaning the overall cost of motoring decreases or stays the same.

Other major costs include the depreciation cost of the vehicle, tax, insurance and the cost of capital used to purchase a vehicle.

Fuel costs are governed by a number of factors; the cost of crude oil, world supply, the level of taxation, the operation of the international oil markets, the UK Government’s fuel escalator, who you buy your fuel from and where you live.

In the UK nearly 60% of the price of a litre of unleaded fuel is taken as tax. The effect of this is that if you buy 60 litres of fuel at £1.37 a litre you will be paying £50 in indirect tax.

Her Majesty’s Revenue and Customs (HMRC) regularly assess the cost of fuel in order to set Advisory Fuel Rates for those being reimbursed fuel costs per mile while using a company car. This is an indicator of fuel costs per mile, for petrol, LPG and diesel. The last HMRC calculation was undertaken effective from 1 March 2013. The table below gives some indication of fuel costs per mile for June 2014. Information on advisory fuel rates before March 2013 can be found at www.hmrc.gov.uk/cars/advisory_fuel_current.htm

Engine Size

Petrol per mile

LPG per mile

Diesel per mile

1400cc or less

14p

9p

12p

1401cc to 2000cc

16p

11p

14p

Over 2000cc

24p

16p

17p

The tax position

An employer can reimburse an employee for the extra costs incurred in using their own vehicle for work. There is no limit as to the level of reimbursement that can be received from an employer. However the HMRC operate the Approved Mileage Allowance Payment (AMAP) system. AMAP enables tax free reimbursement of 45p a mile for the first 10,000 miles and 25p a mile thereafter (cars). Any payment above the AMAP level is taxed on the excess. A payment below may attract Mileage Allowance Relief on the shortfall. There are also AMAP rates for motorcycles and cycles. Employers are not obliged to pay employees at AMAP rates.

Retrospective claims for tax relief can be made and you can discuss this with your local tax office.

Type of Vehicle

Tax year 2014/15

Cars up to 10,000 miles

45p a mile and 25p a mile thereafter

Motorcycle

24p a mile

Bicycle

20p a mile

Home to work mileage

Employees cannot claim the cost of home to work mileage unless they are a designated home worker. Where excess miles are travelled due to a change of base, excess miles can be paid for up to four years dependent upon local agreement.

Mileage reimbursement is a payment from your employer that can be subject to tax and national insurance deductions on the whole amount. However if the payment is made clearly for costs incurred in the performance of your duties then tax relief can be obtained (see AMAP earlier).

HMRC audits NHS organisations to ensure that all mileage paid for by the employer is subject to the correct application of tax and National Insurance. HMRC states that for the purposes of tax relief:

‘an employee cannot turn what is really an ordinary commuting journey into a business journey simply by arranging a business appointment somewhere on the way just to get relief. To get relief the employee must be able to show that the attendance at that particular place on that occasion was necessary – in a real sense – for the performance of the duties of that employment and was not just a matter of personal convenience’……..’similarly, an employer cannot turn an ordinary commuting journey into a business journey by requiring an employee to stop off on the way to carry out business tasks such as making phone calls’.

If work-related visits (or other such tasks) are undertaken on the commute to or from your workplace, tax relief can only be gained on the cost of that journey if it is clear to HMRC that it is in the performance of the employee’s duties.

If visits have to be made on the commute to or from work then the employer should be clear that these are required both to ensure that they are covered by the employer’s liability and that the reimbursement for the journey attracts tax relief.

If you are reimbursed for travel that is not considered to have been undertaken in the course of your duties then there will be no tax relief available and the full amount will be considered as income and subjected to tax and national Insurance accordingly.

Pre-2013 changes to AfC Section 17, Annex L and Annex M

Some changes to Section 17 and Annex L (Mileage rates) and M (Lease cars) were made prior to the major July 2013 changes. These include the introduction of a requirement that when a lease car is offered, there should be a joint consideration of whether a lease car is appropriate and a fair consideration of the grounds on which an employee might reasonably refuse such an offer. The arrangements allow a lease car to be accepted as a lease car for business miles only or as a pool car (see new Annex M 1.iii) ie for business use only.

The pay circular relating to lease cars was also clearer on the need for employers to regularly check HMRC Advisory Fuel Rates for lease (company) car fuel reimbursement.

Public liability

Increasingly employers are taking steps to ensure that employees who use their own vehicles for business use, sometimes referred to as ‘the Gray Fleet’, are fit to drive, that the vehicle is road worthy and that the driver possesses the correct insurance. The new arrangements ensure that managers undertake appropriate checks when authorising business miles to be travelled by an employee. Before the use of a private car is agreed there must be a consideration of whether or not the travel is necessary and if so can it be more efficiently undertaken by public transport or by some other form of travel.

Frequently asked questions (FAQs)

Q. What is the alternative to Section 17?

A. Mileage allowances have always been open to local negotiation. In the absence of a new agreement there is no guarantee that employers would continue with the current AfC arrangements. Were AfC Section 17 to be retained as currently drafted there would be little likelihood of employers agreeing to increase mileage rates (or lump sums) on a national basis in the future. It is important for a mileage reimbursement system to continue to form part of the AfC arrangements.

Q. Who do the arrangements apply to?

A.  They apply to all staff on Agenda for Change terms and conditions and those staff that have AFC mileage allowances built into their terms and conditions

Q. My NHS organisation want the unions to negotiate different arrangements – what do you advise?

A. The agreement is about setting in place a fair and long-term system for the reimbursement of the extra costs associated with using your vehicle for your employer’s business. The key element of the  arrangement is the regular check on fuel and motoring costs which ensures that the reimbursement keeps a track of the costs of motoring and will rise if costs rise in the future. Members should also note that if motoring costs fall the rate of reimbursement will also fall. There is no benefit in agreeing an alternative system that does not keep a direct link between the costs of motoring and the level of reimbursement. We believe these arrangements are the best for the future and that they should be implemented as agreed. Staff side organisations do not support local negotiations.

Q. Will the payments change when fuel costs change?

A. Motoring costs (such as depreciation, tax, insurance and the cost of capital) will be reviewed annually with the cost of fuel reviewed twice a year. The reviews will follow the publication of AA fuel price reports which are published twice a year in April/May and October/November. Mileage allowance payments will keep in line with changes in the overall cost of motoring. If the cost of motoring rises above 5% (over a twelve month period) the rate will rise and if below 5% the rate will reduce. It could be the case that fuel costs might rise but this might be equalled out by other costs decreasing.

Q. What is the tax relief I can claim for using my own car for work?

A. If you use your own car (van, motor cycle, or bike) for work purposes and are reimbursed at a level below the approved HMRC Approved Mileage Allowance Payments (AMAP) they you are able to receive mileage allowance tax relief on the shortfall. If you are reimbursed above AMAP levels you will be taxed on the excess amount. This is an annual tax issue. For further information contact your tax office. Your payroll department will be able to give you the details of you tax office.

Q. I have a lease car, how am I affected?

A. The new reimbursement rates do not relate to pool cars, lease car users or company car users who have taken a lease car through a salary sacrifice scheme. If you have a lease car you are reimbursed usually for the cost of fuel used. The new Annex M makes clear that employers should refer regularly to the HMRC advisory fuel rates.

Q. When does the 3,500 miles per annum run from - April to April or July to July?

A. The period runs from July to July.

Q. I am a designated home worker how am I affected?

A. Paragraph 17.15 requires the employer and employee to agree the normal work base and the home to base return mileage. When the line manager and employee agree that the employee is based at home for the purposes of mileage claims the employee is reimbursed for all business miles travelled from his/her home to the places visited and back to home.

If you are a home worker and use a lease (company) car you will usually be paid a mileage allowance related to the cost of fuel used (see Annex M).

Q. Can my employer insist that I take on a lease car?

A. No. However there may be a reduction in mileage reimbursement if you unreasonably decline such an offer The agreement requires that the employer and employee discuss the offer of a lease car and seek an agreement as to whether a lease car is the most appropriate option for business travel – a test of ‘reasonableness’ - taking into account need and cost (see Section 17.7). Only if a lease car is turned down unreasonably would the new Reserve Rate (50% of the single rate) be applied.

Q. Can I be forced to take on a Lease Car through salary sacrifice?

A. No. Neither should a rejection of a salary sacrifice option be seen as a refusal of a lease car and there should be no reduction in mileage reimbursement.

Fuel costs

Q. I don’t have a car and use public transport; how am I affected?

A. Legitimate expenses incurred on business travel continue to be reimbursed under the employers’ travel policy.

Q. How do I know if the NHS reimbursement will cover the extra costs I incur in using my car for work?

A. This is not always a straightforward thing to assess. However one way of looking at it could be in relation to the total miles you travel in a year. For example you already own and pay for a car for personal use. Let’s say you drive 15,000 miles a year and of this 5,000 miles (33%) are business miles. You will already be bearing the full cost of your 10,000 personal miles. Under the new arrangements you will receive £2,705 in NHS reimbursement. If each mile travelled for work cost you 16p in petrol (£800) then you could say that the remaining £1,905 goes towards all of the other non fuel costs that you have incurred in undertaking the extra miles. You can now consider to what extent the NHS reimbursement covers the extra cost of using your car 50% more (the extra 5,000 miles) than you had planned.

Q. Why not just reimburse at the AMAP level ?

A. AMAP is a figure set by Government and subject to possible change by Government. Whilst there is usually a pressure from business drivers to increase the level of tax relief available (AMAP currently 45p for the first 10,000 miles and 25p a mile thereafter) there is also a lobby to reduce that level. This is because some consider that AMAP either encourages people to drive to the maximum number of miles available in the allowance while others feel that the level of allowance overestimates the cost of motoring. The new system, while less than AMAP for some people, does ensure that rising costs will be reflected in the level of reimbursement and not subject to unilateral change. Where NHS reimbursement is less than the HMRC AMAP levels tax relief can be obtained.