CBI calls for mileage allowance 'stealth tax' to be scrapped in Budget

The CBI has called for a mileage allowance ‘stealth tax’ to be scrapped in Wednesday’s Budget after figures suggested it was causing some employees to refuse to take their cars on business journeys.

Approved Mileage Allowance Payments (AMAP) allow firms to reimburse around two million workers for using their cars or vans for business trips without incurring any extra taxes.

But the 45p per mile rate – which is intended to cover fuel as well as some wear and tear to vehicles – has not been updated since 2011.

A 25p rate on anything above 10,000 miles has been in place since 2002.

Since 2011, fuel prices have gone up by 10 per cent and vehicle maintenance by 48 per cent, the Confederation of British Industry said.

‘Stealth tax’: Approved Mileage Allowance Payment rates have not been updated since 2011

Now, 18 per cent of firms say some employees are refusing to make business journeys because the rates are no longer enough to cover their costs, according to a new CBI poll of 788 companies.

It would cost the Treasury just £90m – a fraction of the multi-billion pound total of some other tax measures – to raise the rates to 60p and 33p, the business organisation calculates.

The CBI said: ‘It is an unfair stealth tax due to how outdated the rates are.’

All types of businesses from small to large are affected.

Those refusing to make journeys include mechanics, area managers, van and lorry drivers, warehouse staff, engineers and IT teams. If employers were to reimburse them for mileage at higher than the current AMAP rates, they would be liable to pay employer national insurance on the additional amount.

And employees would also have to pay income tax and employee national insurance on the sum.

Mohammad Jamai, CBI director of economic policy, said: ‘The Chancellor has a real opportunity to show he is on the side of motorists and working people who make vital business journeys every day.

‘By increasing the tax-free mileage rates, he can ease the financial pressure on workers and their employers, and encourage more business travel to boost productivity.

‘It is crucial that the government removes barriers to growth.’