High Vehicle Costs and Petrol Allowances

The HMRC allows 40p per mile for travel costs when using a car for business purposes. The rate of 40p per mile was set in 2002 when a litre of unleaded cost an average of 77.9p. Today the average cost of a litre is around £1.30, representing a rise of 68%. The rise in vehicle costs without a commensurate rise in travel allowances means the role of vehicle tracking systems becomes ever more crucial. Every additional and unnecessary mile driven adds unnecessary costs.

I use my own car for business trips. Tomorrow I am to make a business trip of around 264 miles. My mileage allowance will be £105.60. Back in 2002, at 33 miles per gallon my petrol costs would have been £28.29, leaving £77.31 to cover both the variable costs and a contribution towards the shared fixed costs of car ownersip. Tomorrow my petrol costs will be £47.22, leaving just £58.38 towards other costs. Even if all other costs had stayed the same since 2002, I am left with a 24.5% shortfall. I am probably, therefore subsidising my employer.

A quic estimate of the true costs of the trip - based on its share of my annual mileage - indicates a fairer mileage contribution would be nearer 65p per mile. I drive about 9,000 business miles per year and further 4,000 miles on private mileage. At current mileage rates and petrol costs it would appear that I am subsidising my business to the tune of £2,250 per annum. The daft thing is, if my business was to compensate me for these increased costs I would need to pay tax on them as a benefit. If the HMRC fails to raise mileage rates I foresee increase demands to bring back company vehicles.