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Reimbursements & Employee Benefits

There is a lot of bad press about HMRC at the moment and with the office of tax simplification closed where can we look now to get reviews of what may seem like outdated and overly complex tax legislation.

One such area that has arisen in the last 12 months has been the mileage reimbursement. Employees who are struggling with other costs of living are asking if they can get more than the 45p per mile on their travel for work.

The 45p reimbursement rate for first 10k of mileage per year has been in place since 2011, when unleaded and diesel were 132.5p and 141.1p on average. Today's average (Feb 2023) is at 148.12p and 170.2p respectively, a 28% and 5% increase. But what does it actually cost to do those miles?

Today, average litre consumption is 1 per 10 miles hence the cost per mile is, on average, 17p for diesel. This gives a cost of £1,700 for 10,000 miles. Add 'wear and tear' costs of £1,200 per annum your total cost of running and upkeep for a vehicle is £2,900.

At the 45p reimbursement rate you receive £4,500 tax free, and this is fine if you own your car but if you need to buy a vehicle finance then there is not enough in the pot!

What are employer options to help?

1) Pay employees > 45p per mile. This creates a benefit in kind for the employees with extra PAYE and NIC costs.

2) Provide a company car - not always a tax efficient option for the employee (or employer) given the benefit in kind value creating national insurance contributions. The cash flow option of the business financing a car also need to be considered.

3) Offer a car allowance – again, not tax efficient as this will be treated as employment income increasing the amount of PAYE and NIC for both business and employee. In some cases it could push more employees into a higher tax bracket.

4) Electric vehicles – currently the benefit in kind of 2%, which is fixed to April 2025, is very favour

able for the provision of electric cars and fuel to employees. With the added bonus that salary sacrifice is available for electric vehicles, meaning employees can sacrifice some of their pay to cover the cost of the vehicle, reducing PAYE and NIC.

Whilst the benefits on offer for electric vehicles are great on paper, it is a large cash investment and can be a risk for a company, depending on how the scheme is set up. There is, however, the issue of those charging queues at service stations!

As always there are many options that employers can take to support their employees outside of their salary package and at Forth Accountancy, we can present the pros and cons of those options to your business and help you get schemes in place.

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