HC Deb 12 December 1991 vol 200 cc475-7W
Ms. Walley

To ask the Chancellor of the Exchequer if he will reconsider the 4,000 mile threshold on his proposed taxation of voluntary drivers' mileage allowance in rural areas.

Mr. Maude

The position in law is that motor mileage allowances paid to individuals, whether employees or volunteer drivers, are liable to tax, but tax is payable only to the extent that the allowances exceed the costs of running and maintaining a car for work or for voluntary driving and so result in a profit.

When working out these costs, volunteer drivers may use simplified administrative arrangements which are known as the fixed profit car scheme and are also available to employees. Under these arrangements "tax-free" rates, calculated by the Inland Revenue to reflect typical costs of running and maintaining a car for different engine sizes and different annual mileages, can be set against motor mileage allowances in order to calculate the taxable profit element.

There are different "tax-free" rates above and below 4,000 miles. The breakpoint ensures that standing costs—such as road tax, insurance and depreciation—are properly spread over the total mileage driven (both private and non-private) and that the tax relief is confined to the non-private proportion of motoring costs.

If volunteer drivers consider that the "tax-free" rates do not fully reflect their tax allowable motoring costs, they can keep detailed records of actual motoring expenses incurred, and private and voluntary driving, in order to make a claim based on their actual expenses.

Ms. Walley

To ask the Chancellor of the Exchequer if he will make a statement on his assessment of the implications of his proposed voluntary drivers' mileage allowance for volunteer bureau transport services.

Mr. Maude

The position in law is that motor mileage allowances paid to individuals, whether employees or volunteer drivers, are liable to tax to the extent that they exceed the costs of running and maintaining a car for work or for voluntary driving and so result in a profit.

I am aware that concern has been expressed about the possible impact on the availability of volunteer drivers of the arrangements which have recently been introduced for taxing motor mileage allowances paid to volunteers. In response to that concern, it has been decided to phase in the introduction of the new arrangements. For the period from 6 October 1991 to 5 April 1993 one quarter of the net profit will be taxed; for the tax year 1993–94 one half of the net profit will be taxed; for the tax year 1994–95 three quarters of the net profit will be taxed. Tax will not be payable on the full profit element until 1995–96.

I hope that the phasing in of the charge to tax will meet the concern which has been expressed.

Mr. Bill Michie

To ask the Chancellor of the Exchequer if he will raise the threshold of the exemption from taxation of the volunteer drivers' mileage allowance.

Mr. Maude

[holding answer 11 December 1991]: The position in law is that motor mileage allowances paid to individuals, whether employees or volunteer drivers, are liable to tax to the extent that they exceed the costs of running and maintaining a car for work or for voluntary driving and so result in a profit.

When working out these costs, volunteer drivers may use simplified administrative arrangements available for employees (known as the fixed profit car scheme) under which "tax-free" rates calculated by the Inland Revenue to reflect typical costs of running and maintaining a car for different engine sizes and different annual mileages can be set against motor mileage allowances in order to calculate the taxable profit element. These arrangments are an alternative to keeping detailed records of actual motoring expenses incurred, and private and voluntary driving, and making a claim based on actual expenses.

As the hon. Member may be aware, it has been decided to phase in the introduction of the arrangments for collecting tax on allowances paid to volunteers. For the period from 6 October 1991 to 5 April 1993, one quarter of the net profit will be taxed; for the tax year 1993–94 one half of the net profit will be taxed; for the tax year 1994–95 three quarters of the net profit will be taxed. Tax will not be payable on the full profit element until 1995–96.

Mr. Bill Michie

To ask the Chancellor of the Exchequer what representations he has received regarding the volunteer drivers' mileage allowance.

Mr. Maude

[holding answer 11 December 1991]: I have received a number of representations from organisations and individuals following the Inland Revenue's introduction of arrangements for collecting any income tax which may be due on motor mileage allowances paid to volunteer drivers. The representations have expressed concern about the possible impact of the new arrangements on volunteers' willingness to continue driving.

In replying to these representations, I have pointed out that tax is chargeable only if the allowances exceed the costs of running and maintaining a car for voluntary driving and so result in a profit; and that it has been decided to phase in the new arrangements gradually over a period.

I am very much aware of the important and valuable service these drivers provide, and hope that the phasing-in arrangements will meet the concern that has been expressed.