Pre-Budget Report predictions

Holiday pay funds and tax around cars are issues likely to come up in the pre-Budget report.

Alistair Darling, chancellor of the exchequer will present his first pre-budget report. Alastair Kendrick, partner at Bourne Business Consulting predicts changes to the rates of authorised mileage allowance payments (Amaps), green initiatives in relation to cars and restrictions to holiday pay funds.

Currently Amaps permit employers to reimburse workers that drive business miles in personal vehicles, tax free at 40p for the first 10,000 miles each year, and 25p per mile thereafter. However, Kendrick said that tomorrow’s report might announce a decision to adjust the rates to – for example – 50p for the first 7,500 and 25p per mile thereafter in order to discourage people from spending too much time in their car, in line with green responsibilities.

He said that a longer-term solution which might be addressed in the report, is a change to the rate according to how green the vehicle is, however, Kendrick did not feel this would happen very soon. He said: “It was in the consultation document, but I just think it’s too much too soon to expect it to happen quickly.”

Kendrick also predicted that the rate of capital allowances given for cars could be reduced for less green vehicles. “I think that if that is introduced, it will certainly throw back into the equation whether company cars are a viable option because it will increase the cost for employers either directly if they are buying the cars, or indirectly because the leasing company will be losing that capital allowances relief, so effectively they will add that cost onto their customer.”

The other benefit that might be hit by the pre-budget report are holiday pay funds outside the construction industry. Under these schemes, employers pay funds in to a third-party administrator and reclaim these when staff take leave. Neither employees nor employers are liable for National Insurance (NI) on the amount. The scheme was started for workers in the construction industry but a large number of employers in other industries have started using then to save NI. Baker Tilly said that HM Revenue and Customs has been investigating the funds in an attempt to block the NI savings and that, because they are costly to the government, the chancellor may use the pre-Budget report to attack the employers who operate these arrangements.

Kendrick agreed: “The revenue hates these schemes, I wouldn’t be at all surprised if they don’t just take them out, they think they are an affront.”