SE31205 - Employees using their own vehicles for work: rules from 2002/03 onwards – overview

Sections 197AD to 197AH and Schedule 12AA ICTA 1988 as introduced by Section 57 and Schedule 12 FA 2001, Sections 58 and 59 FA 2001

From 6 April 2002 there is a new statutory system for dealing with

• payments that employers make to employees who carry out business travel in their own cars, vans, motor cycles or cycles, and
• deductions to which employees are entitled for carrying out business travel in their own cars, vans, motor cycles or cycles.

Note: For what counts as an employee’s “own” vehicle see SE31230 and SE31235.

This new system replaces

• the statutory treatment that applied before 6 April 2002
• all the administrative practices that applied before 6 April 2002 in connection with the reporting of mileage payments to the Inland Revenue, and with calculating deductions due to employees
• the Fixed Profit Car Scheme (FPCS), Car Allowances Enhanced Reporting Scheme (CAERS) and the “simplified method” that allowed employees to use the Inland Revenue Authorised Mileage Rates to calculate the tax position on business travel in their own vehicles. These cannot apply for tax years after 2001/02. (But see SE31275 for details of a limited successor to the Car Allowances Enhanced Reporting Scheme)
• dispensations for mileage payments to employees using their own vehicles for business travel (see SE30058).

The main features of the new system are as follows:

• A new statutory tax exemption is introduced in respect of mileage allowance payments – up to a certain level – to employees in respect of using their own vehicles for business travel. Payments are exempt to the extent that they do not exceed the “approved amount for mileage allowance payments” (referred to in this guidance as “the AMAPs amount”). See SE31250 onwards.
• A new statutory method of calculating the expense deduction due when employees use their own car, van, motor cycle or cycle for business travel. This deduction is described as mileage allowance relief (MAR). See SE31330 onwards.
• There is also a tax exemption in respect of additional payments made to employees for carrying fellow employees on business journeys as passengers in cars or vans (but not on motor cycles or cycles). See SE31400 onwards.

Layout of the guidance

The rules about the exemption from tax for AMAPs and the deductions that are due in the form of MAR are based on a series of definitions. Many of these definitions apply to both AMAPs and MAR. The guidance

• starts by defining the key terms used in the legislation (see SE31210 onwards)
• provides details of the statutory mileage rates that apply for both AMAPs and MARs (see SE31240 onwards)

and then goes on to deal separately with the rules on the

• tax exemption for AMAPs (see SE31250 onwards),
• tax relief in the form of MAR (see SE31330 onwards)
• tax exemption for payments for passengers on business travel (see SE31400 onwards)

Changes to rules that applied before 6 April 2002

As a result of the introduction of the new statutory system, there are significant changes from the way in which the tax rules applied up to 5 April 2002. The main changes are:

• employees can no longer calculate their allowable travel expenses using the “actuals” basis. See SE31335.
• capital allowances are no longer due when employees use their own car, van, motor cycle or cycle for business travel. See SE31335.
• employees can no longer get tax relief for the business proportion of interest paid on loans used to buy a car used wholly or partly for business. See SE31335.

For guidance about the tax treatment that applied up to 5 April 2002 see

For guidance about the NICs treatment that applied up to 5 April 2002 see NIM05702.

National Insurance Contributions (NICs)

There are also changes to the NICs treatment of mileage allowances from 6 April 2002 and guidance on these is, or will be, in the National Insurance manual at NIM05760 onwards. While the two schemes have been aligned as much as possible, the NICs scheme differs from the AMAPs scheme in various ways. You should not assume that something which is true for one scheme is also true for the other.

Things not affected by the new rules

The rules described at SE31205 to SE31385 do not apply to

• the tax treatment of private motoring costs met by an employer
• the tax treatment of business mileage payments at a fuel only rate to employees driving company cars (see SE23777)
• payments which are not “mileage allowance payments” (see SE31210).