If an individual incurs expenses ‘wholly, exclusively and necessarily’ in doing their job and is reimbursed by the employer, the employee is not taxed on the reimbursement. If the employer does not reimburse the expenses, employees can claim a deduction against tax on their employment income.
To put it another way, if you have to spend money to do your job the tax system usually gives you a tax deduction.
But, to simplify life, HMRC set allowable levels of expenses and publish them. This is good. What is not so good is that HMRC do not automatically uprate these allowances for changing economic conditions.
Time for uprating
There are many tax reliefs for expenses which remain static year after year whilst circumstances change, but perhaps the most obvious example at the present time is the tax allowance for the cost of fuel.
This is called an Authorised Mileage Allowance Payment (AMAP), being the mileage payment that an employer can pay free of tax to employees for using their own car on the employer’s business. Currently an AMAP for a car is 40p per mile for the first 10,000 business miles and 25p per mile thereafter.
The 40p rate has been in place since 1997 when petrol prices were around 60p per litre. The AMAP system came into place in 2002 when the price of petrol was around 75p per litre.
Currently the price is around 133p per litre in many areas. There is a clear and obvious need to change.
The Budget is the occasion when Government ministers announce changes to tax law. This year the Budget is on 23rd March and LITRG would like to see a decisive move to move the AMAP upwards so that low income workers who are dependent upon their cars are able to get appropriate relief and do not end up subsidising their employers.
Cars are driven not just by top-rate taxpayers, but also by midwives, by care workers, by commission only representatives.
The same issue arises also for AMAP rates for vans and motorbikes.
LITRG is calling for the Government to make a commitment in the Budget to adjust all allowances which affect low income workers by reference to the economic realities which apply to those workers. A start should be made by adjusting the AMAP for fuel sharply upwards.
Contact: John Andrews (please use form at http://www.litrg.org.uk/ContactUs)