Calculating Advisory fuel rates

24 July 2020

HMRC has published detailed guidance relating to advisory fuel rates for company car users, including when they can be used and how they are calculated.

As well as the detailed guidance on how the advisory fuel rate is calculated, the guidance makes it clear the tax and National Insurance (NI) liabilities that are reportable where a rate above the advisory fuel rate is reimbursed to the employee.

If an employer reimbursement is no more than the advisory fuel rates for the engine size and fuel type of the company car, the employee is not liable to pay either tax or NI. Employers are advised that if the company car provided is more fuel efficient or the cost of business travel is higher than the advisory fuel rates, employers can use their own rates to reflect their personal situations.

If the cost of business travel is higher than the advisory fuel rates, and employers choose to pay a higher rate to cover the cost of business miles travelled, proof will need to be provided to prove costs for no fuel benefit charge to arise. If this cannot be proven, any excess of the advisory fuel rates will need to be treated as earnings, liable to both tax and NI.

Some company car users are provided with fuel for their company car with no tax liability on the proviso that the employee records all private miles travelled and the cost of those miles are repaid at the correct rates (or higher) by the employee. Advisory fuel rates will not need to be used where it can be shown that the employee covers the full cost of private fuel by repaying at a lower mileage rate in the event the employer uses their own rates.

HMRC review rates quarterly on:

  • 1 March
  • 1 June
  • 1 September
  • 1 December

For full details of how the rates are calculated see the recently published gov.uk page.


 

 

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