Comments by the CIOT on the draft regulations, sent to the Inland Revenue on 31 October 2001. The Chartered Institute of Taxation is grateful for the opportunity to comment on the proposed regulations on mileage allowances and passenger payments.
The regulations are welcome as a step towards ensuring that employers must deal with only one set of rules for tax and NIC. However, it is disappointing to note that, despite this being the stated aim of the Government, the regulations fail to achieve full alignment.
The use of a statutory common mileage break point and approved mileage rates is welcome. The correction of the technical anomaly that reimbursement of private petrol expenses, strictly, gives rise to both Class 1 and Class 1A liabilities is long overdue, since it was identified when Class 1A NICs were first introduced in 1991.
The Institute’s most serious concern about the draft regulations is that the proposed arrangements involve treating any excessive payments as earnings within Class 1, rather than as an emolument within Class 1A. As the Department will know, mileage allowance payments are treated as outside PAYE and are reported on P11D. Treating any excessive payments for business mileage as cash earnings within Class 1 creates unnecessary work for employers, who currently report the payments only annually.
If the current proposals are adopted, payroll departments will need to take non-standard actions each month if they are to comply, which is, in our view, an unwarranted burden when the opportunity exists to simplify and streamline the process. While recognising the possible impact on benefit entitlements in a very tiny minority of cases, we would urge ministers most strongly to transfer the liability on excessive AMAPs from Class 1 to Class 1A. In our view, this would tend to improve the chance of employers complying with the regulations and paying the correct amount, albeit in one sum after the end of the tax year. We would not expect the negative cash flow impact to the NI Fund to be significant, as most employers can in practice be expected to pay no more than the AMAP rate.
Our second concern relates to essential user schemes operated by some employers, typically in the public sector. These usually involve the payment of monthly lump sums together with a low mileage allowance. It is not immediately clear that the monthly lump sums will fall within the definition of ‘mileage allowance payment’ in s197AD, ICTA 1988, as they cover mixed private and business costs. If they are outside the scope of that section, then they appear to be fully within Class 1 under the proposed regulations, which would in effect charge NIC on the business element. Tax relief is available by virtue of s197AF, but this is not mirrored in the proposed NIC regulations. We would urge ministers to reconsider this point and amend the regulations to give appropriate relief or announce an administrative practice which will allow such essential user schemes the same relief as is afforded at present.
31 October 2001
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