SE31335 - Employees using their own vehicles for work: rules for deductions from 2002/03 onwards – mileage allowance relief – no relief for actual expenditure, capital allowances or loan interest

Section 198(5) ICTA 1988 as introduced by Part 2 (Consequential Amendments) Paragraph 6 Schedule 12 FA 2001, Section 59 FA 2001, Section 359(3) ICTA 1988

SE31330 summarises the rules that apply from 6 April 2002 for working out the amount of any deductions to which employees are entitled for carrying out business travel in their own cars, vans, motor cycles or cycles. The new system of deductions based on statutory mileage rates is called mileage allowance relief (MAR). MAR replaces both

• the old statutory method for calculating relief, and
• the optional system of using the Inland Revenue’s authorised mileage rates for cars, motor cycles and cycles.

Changes to the statutory method for calculating relief

Withdrawal of deductions for actual expenditure

Until the end of 2001/02, employees are entitled to get a deduction for the actual costs that they incur in using their own vehicles for business travel. (Guidance on how to calculate the deduction is at SE31845 onwards). From 6 April 2002 employees can no longer get a deduction for their actual expenditure, whatever the amount or circumstances. Instead, employees are entitled to mileage allowance relief (MAR) if they do not receive any payments for business travel in their own cars or if the amounts they receive are less than the maximum amount that could be paid tax free, the AMAPs amount.

Withdrawal of capital allowances, and transitional arrangements for 2001/02

From 6 April 2002 employees are no longer entitled to capital allowances when they use their own car, van, motor bike or cycle for business travel.

See SE36791 for details of the special rules for calculating capital allowances under the transitional rules that apply for 2001/02 – the final tax year for which employees can get capital allowances on their own vehicles.

Withdrawal of non-statutory authorised mileage rates

From 6 April 2002 employees can no longer use the Inland Revenue’s authorised mileage rates (sometimes called “FPCS rates”) to work out relief for the cost of using their own car, van, motor cycle or cycle for business travel. Instead, they may be entitled to MAR, which is calculated using the rates laid down in legislation (see SE31240 for the rates).

Until the end of 2001/02 employees can continue to use the authorised mileage rates as an alternative to the strict actual expenditure method when calculating the amount of their allowable business motoring expenses. See SE31860 onwards (cars), SE31915 (cycles) and SE31920 (motor cycles) for details of the method that can be used up to and including 5 April 2002.

Withdrawal of loan interest relief

From 6 April 2002 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. This is because employees can only get relief for interest on a loan taken out to buy plant or machinery (which includes vehicles) if the employee can get capital allowances on that plant or machinery.