CLAUSE 57 AND SCHEDULE 12: MILEAGE ALLOWANCES: EXEMPTIONS AND RELIEF

SUMMARY

1. This Clause introduces a new tax exemption for mileage allowance payments, up to the approved rate, paid by employers to their employees for undertaking qualifying business travel in their own vehicles. It also exempts payments of up to 5p per mile paid in respect of business passengers. Employees who do not receive any mileage allowance payments, or payments that are less than the approved rate, from their employers can claim tax relief up to that rate. The clause takes effect for tax years from 2002/03. Schedule 12 inserts schedule 12AA (definitions of terms relating mileage allowance) into Taxes Act 1988, and makes consequential amendments.

DETAILS OF THE CLAUSE

2. Subsection (1) inserts new sections 197AD to 197AH into the Taxes Act 1988.

Section 197AD exempts from charge under Schedule E mileage allowance payments made by employers to their employees for qualifying business travel, up to an approved level set down in Schedule 12AA.

Section 197AD (2) provides that the mileage allowance payments are the total of amounts that may be paid as rates in pence per mile or as other amounts such as monthly payments, provided that they are payments for the use of the vehicle for business travel.

Section 197AD (3) limits the exemption to circumstances where the total amount of mileage payments does not exceed the amount of approved mileage allowance payments, as set out in schedule 12AA, payable for the business miles undertaken in that type of vehicle.

Section 197AD (4) provides that the exemption will not apply to any amounts paid to a passenger, or to the driver of a company vehicle as defined in Schedule 12AA.

Section 197AE exempts payments made for carrying a qualifying passenger.

Section 197AE (1) provides a tax exemption for payments up to the approved level made to an employee for carrying a passenger or passengers in his/her own car or van or a company car or van on business travel. The employee must also receive mileage payments for the expenses of business travel.

Section 197AE (2) provides that passenger payments are amounts paid where an employee using a car or van for business carries one or more passengers for whom the travel is also business travel.

Section 197AE (3) limits the exemption to cases where the passenger payments do not exceed the approved payment rate set down in schedule 12AA.

Section 197AF provides for an employee to be entitled, in certain circumstances, to mileage allowance relief where he uses his own qualifying vehicle for qualifying business travel .

Section 197AF (1) limits the relief to cases where, in that tax year, the employee uses his own vehicle for business travel and either receives no payment or the amount he is paid is less than the approved mileage allowance payment for that vehicle as set out in schedule 12AA.

Section 197AF (2) provides that relief is available only to drivers using their own vehicles for business travel, not to passengers or company vehicle drivers.

Section 197AF (3) limits the relief allowed under the section to either the amount of approved mileage allowance for the vehicle in question or the difference between that sum and the mileage allowance payments made to the employee, whichever is less .

Section 197AG sets out how the mileage allowance relief will be given effect.

Section 197AG(2) allows the relief as a deduction from emoluments of the employment falling within Case I or II of Schedule E.

Section 197AG(3) allows the relief as a deduction from emoluments chargeable to tax under Case III of Schedule E. The deduction is the amount which might have been deducted for the year for which the employee was entitled to the relief if the emoluments had been chargeable under Case I of Schedule E.

Section 197AG(4) provides that the relief can only be deducted from emoluments chargeable under Case III of Schedule E when it cannot be deducted from emoluments falling within Case I or II of Schedule E.

Section 197AG(5) prevents a deduction being made for the same mileage allowance relief from emoluments within Case I or II of Schedule E and from emoluments chargeable under Case III of Schedule E.

Section 197AH provides that the terms used in sections 197AD to 197AG will have the meanings set out in schedule 12AA.

Subsection (2) inserts schedule 12AA (in Part I of Schedule 12 of the Finance Bill) into Taxes Act 1988.

Subsection (3) provides that the consequential amendments listed in Part II of Schedule 12 of the Finance Bill will apply.

Subsection (4) applies the amendments in subsections 1 to 3 from the tax year 2002/2003 onwards.

DETAILS OF SCHEDULE 12

3. Part I of Schedule 12 inserts schedule 12AA into Taxes Act 1988. Schedule 12AA sets out the the interpretation of the terms used in sections 197AD to AH. Part II of Schedule 12 details the amendments consequential to the introduction of the new provisions in sections 197AD to AH.

Part I

Paragraph 2 Schedule 12AA provides that the definition of business travel in section 198 will apply for the purposes of mileage allowances.

Paragraph 3 defines types of qualifying vehicles.

Paragraph 4 sets out the rates of approved mileage allowance payments in different types of vehicles. It provides that the higher rate of mileage allowance payment only applies for the first 10,000 miles of business travel in a car or van in relation to his/her employment or any associated employment.

Paragraph 4(3) provides power for the Treasury to make regulations to change the rates payable and also the miles for which those rates may be paid.

Paragraph 5 sets out the approved rates and their calculation for passenger payments.

Paragraph 5(2) provides that an amount is available in respect of each qualifying passenger carried.

Paragraph 5(3) defines a qualifying passenger as a fellow employee for whom the travel is also business travel. This excludes passengers who may travel in the vehicle for other than business purposes.

Paragraph 5(4) provides power for the Treasury to make regulations to change the passenger payment amounts.

Paragraph 6(1) defines a company vehicle for the purposes of sections 197AD to AH.

Part II

For the most part this sets out minor consequential amendments to Taxes Act 1988 and the Finance Act 2000 as a consequence of the provisions in sections 197AD to AH.

Paragraph 6 of Part II removes the right for an employee to get a deduction for the actual amount of expenditure incurred when using his or her own vehicle for business travel. This amendment prevents double relief where mileage allowance payments are exempted from tax or mileage allowance relief is given.

BACKGROUND NOTE

Clause 57 brings into effect measures to encourage the use of enviromentally friendly and fuel efficient privately owned cars for business travel. It also provides for payments for carrying business passengers to offer an incentive for the sharing of cars or vans where employees are making the same journey for business purposes. The passenger rate may be paid to both employees who are using their own cars or vans for business travel and those who have a company car or van.

The clause sets down a limit on the amount of approved mileage allowance payments for employees or office holders who use their own vehicles for business purposes. The amount will depend on the business miles travelled in the tax year with a lower rate applying to cars and vans after the first 10,000 miles. The approved rate will be the maximum amount which an employee can be paid without incurring a liability for tax or National Insurance contributions.

Where the employee receives less than the maximum mileage allowance payment, he or she will get mileage allowance relief on the difference between the maximum relief calculated by reference to the statutory rates and payments received, if any.

New Schedule 12AA sets out interpretations of the new sections 197AD to AH.. It also sets out the amount of passenger payments which employers can pay to employees carrying qualifying passengers without incurring any tax liability. The passenger rate may be paid to both employees who are using their own cars for business travel and those who have a company car.

Part II of the Schedule details the amendments which will need to be made as a consequence of the new provisions in sections 197AD to AH as inserted by clause 57.