§ Mr. NorrisTo ask the Chancellor of the Exchequer if he has any proposals for changing the tax rules for motor mileage allowances paid by employers to employees who use their own cars for work; and if he will make a statement.
§ Mr. LilleyTwo new clauses to the Finance Bill are being tabled today, and the Inland Revenue is announcing changes to its administrative arrangements for taxing mileage allowances.
In many cases the Inland Revenue collects any tax due on mileage allowances through administrative arrangements known as the fixed profit car scheme—FPCS. The tax-free mileage rates used under the FPCS to calculate liability are intended to reflect the tax-allowable costs of using a private car for business purposes. But over the years they have got out of line with the relief strictly due under existing law, and have become too generous. The Revenue is under an obligation to apply the tax law Parliament has enacted. Present practice does not achieve that. The Revenue has concluded that it must bring present arrangements into conformity with the law. But changes to bring the FPCS into line with the strict legal position would mean that many employees who receive mileage allowances from their employers would face much bigger tax bills.
The Government have therefore reviewed the present tax regime and has concluded that changes in the law are appropriate to make the statutory tax reliefs more generous. In addition, the Revenue will be changing the FPCS so that it reflects business motoring costs more closely. The proposed new rules will take effect from 6 April 1990, and will produce a fairer system under which employees who use their own cars for work will be able to claim tax relief for the business proportion of all their motoring expenses.
Many employees' tax bills will not be affected by these changes, but some will be reduced and some increased. The reductions will apply from 6 April 1990. But the Government propose transitional arrangements which will
654W ensure that no one who received mileage allowances in 1989–90 has more tax to pay as a result of these proposals for 1990–91; and that any increases as a result of the changes will be phased in gradually over subsequent years.
1985–86 1986–87 1987–88 1988–89 1989–90 1990–91 Day care assistants, Aberystwyth 2,549 2,549 2,549 2,549 2,549 2,549 Area Mental Health Team, Ceredigion — 10,737 10,737 10,737 10,737 10,737 Team Co-ordinator, Area Mental Health Team — 5,225 5,225 5,225 5,225 5,225 Residential rehabilitation centre, Rhoserchan — — — 10,200 23,286 1— Area Mental Health Team, Aberystwyth — — — 1,568 1,568 1,568 Peripatetic Care Assistant, Aberystywth — — — 3,600 3,600 3,600 Social Worker, Aberystwyth — — — 8,501 8,501 8,501 IT investment Bronglais General Hospital and Cardigan Hospital2 — — — — 63,000 — Computing Laboratory systems with links to FPC records cervical cytology, Bronglais Hospital — — — — 31,250 4,460 1 Unit accepts referrals from Wales and occasionally from England. A new bid for this unit for 1990–91 will be considered by the Welsh Office in September. 2 This funding is specific to the Ceredigion area. The funding does not reflect the level of investment in district wide developments from which Ceredigion will have benefited nor the investment in all Wales IT systems which are also of benefit to the Ceredigion area. An Inland Revenue press release is being issued today giving full details of all the proposed changes.