New advisory fuel rates for company car owners from March 2024

The advisory fuel rates are issued by HMRC from time to time. These are rates published as guidelines by the government of the UK and used by employers for reimbursing employees who travel in a company owned car for official or business purposes. An employee is not supposed to claim expenses on personal trips. The rates are strictly for expenses incurred on business trips in a company car.

Advisory fuel rates from 1st March 2024

HMRC have announced new advisory fuel rates for employees using a company car.

Here, it is pertinent to mention that if the company car is electric, Advisory Electric Rate (AER) will be 9 pence per mile.

Read More: Foreign Business Travel Expenses and Allowances Explained

When do you use the March 2024 advisory fuel rates?

These rates are to be used when you either:

• reimburse employees for business travel in their company cars.
• need employees to repay the cost of fuel used for private travel.

Have the advisory fuel rates gone up in 2024?

Electric car rates are remaining the same and LPG rates have risen.

However, as HMRC base their rates on pump prices over a period, the rates for diesel and petrol cars have been cut.

What about hybrid cars?

*Hybrid cars are treated as either petrol or diesel cars for advisory fuel rates.

Methodology of calculating fuel rates

The AFRs issued by HMRC are directly linked to current fuel prices in the market. Hence, the rates are as accurate as possible. Additional parameters that can impact fuel efficiency and hence, fuel cost like quality of road, factors related to different seasons, fuel efficiency of vehicles are also taken into consideration.

The HMRC AFRs are revised every quarter so that the rates reflect the current market trends and other dynamic factors.

Benefits of using AFRs

The AFRs are structured as guiding principles to facilitate companies in following the right processes for tax and National Insurance (Class 1A) costs. If an employer reimburses at the rate that is same or lower than advisory fuel rates, it is presumed by HMRC that there is no taxable gain or any Insurance cost to be paid.

There may be scenarios where companies may be better off setting their own fuel rates. This may be applicable in case the company is using highly fuel efficient cars or overall fuel cost on company cars is higher than what HMRC envisages.

Employer paying rates higher than AFRs

Company car fuel rate more than HMRC’s advisory rates can be applicable in cases where actual cost of fuel per mile is more in a company’s cars. However, if the same is not true, it would effectively mean that the company is reimbursing fuel costs to its employees even for purposes other than business purposes. A company reimbursing its employees for personal trips needs to pay an additional charge called fuel benefit charge. This is a tax that is applicable to companies paying its employees for personal travel.

In a nutshell, if a company is reimbursing more than its actual business expenses, the additional amount that is being paid is considered taxable gain for Class 1A Insurance purposes.

Employer paying rates lower than AFRs

If an employer pays rates lower than HMRC’s advisory rates, the employee is entitled to claim the shortfall amount from HMRC at the end of the financial year. This is covered under Mileage Allowance Relief.

Employee claims reimbursement for personal trips

In cases where an employee is using a company owned car all time for business as well as personal travel and the company is reimbursing all expenses, the employee is expected to pay back all the reimbursements against personal trips. If not so, the reimbursements on personal trips have to be reported to HMRC and subsequently, the employer needs to pay fuel benefit tax on the payments made for personal travel.

Self employed individuals

For self-employed individuals, the concept of company owned cars does not apply since there is no separate company that can exist apart from the individual. Hence, Advisory Fuel Rates issued by HMRC are not applicable for self employed people.

Instances where employee uses private car for business purpose

There may be instances where an employee finds it more convenient to use their own car than to use a company owned car. In such cases, the employee can claim mileage allowances for personal cars. However, specific conditions need to be complied with to be eligible for mileage allowances.

An eagle’s eye view of how AFRs are calculated

Advisory Fuel Rates are calculated based on oil prices as outlined in table below.

Petrol

LPG

Diesel

• MPG- Miles per gallon; Mean MPG is obtained from manufacturers
• In case of LPG: MPG is considered 20% lower than for MPG of petrol.

Reimbursing employees for company car business travel & national insurance

If the mileage rate you pay is no higher than the advisory fuel rates for the engine size and fuel type of the company car, there will be no taxable profit and no Class 1A national Insurance to pay.

If your cars are more fuel efficient, or if the cost of business travel is higher than the guideline rates, you can use your own rates to reflect your situation.

If you pay rates that are higher than the advisory rates but cannot show that the fuel cost per mile is higher, there will be no fuel benefit charge if the mileage payments are only for business travel.

Instead, you’ll have to treat any excess as taxable profit and as earnings for Class 1 National Insurance purposes.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.