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What are advisory fuel rates and how do they work?

All you need to know about advisory fuel rates, and how to use them to claim for fuel on your company car...

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Advisory fuel rates are the Government's recommended rates for reimbursing employees' fuel costs while driving a company car on business. They can also be used if employees need to repay the cost of fuel used for private travel.

How much can I claim?

It's not as simple as totting up your fuel receipts for the month. Most tankfuls of fuel will include some private mileage as well as business travel, so to make sure drivers only claim a fair amount, HMRC publishes advisory fuel rates.

The amount varies depending on the car's fuel type and engine capacity. Here's how much you can claim: 

Engine size

Petrol - rate per mile

LPG - rate per mile

1400cc or less

10 pence

7 pence

1401cc to 2000cc

11 pence

8 pence

Over 2000cc

17 pence

12 pence

 

Engine size

Diesel - rate per mile

1600cc or less

8 pence

1601cc to 2000cc

10 pence

Over 2000cc

12 pence

For electric cars, the rate of reimbursement is 4p per mile, reflecting the lower cost of charging an electric vehicle compared with a tank of petrol or diesel.

Why are these figures advisory?

Your employer isn't obliged to pay travel expenses at these rates. If your bosses can show that a car is more fuel-efficient than the government rates assume, it can choose to pay you less. This could be the case if you run a very efficient hybrid on business, because the Government doesn't publish separate rates for hybrid vehicles, even if they can travel on electric power alone for some trips.

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Equally, your company could decide to pay more if it can demonstrate to HMRC that the true cost per mile is higher than the advisory rate.

In practice, paying the advisory rate keeps things simple for your employer. Paying above these rates could lead to a business having to pay Class 1A National Insurance, with the excess payment being treated as taxable profit.

How are the rates calculated?

The rates are reviewed in March, June, September and December each year. The numbers are crunched using the average mpg of new cars supplied to businesses, and the latest petrol and diesel prices taken from the Department for Business, Energy and Industrial Strategy. The average price of LPG is taken from the AA website, and the mpg using LPG is assumed to be 20% lower than for petrol because of LPG's lower energy density.

Once HMRC has calculated the average cost of fuel per mile for the different kinds of engine and engine sizes, these are rounded up or down to the nearest whole pence to set the rate.

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What if I need to repay the cost of fuel used for private journeys?

HMRC assumes that the fuel cost per mile on a private journey will be the same as for a business trip. So the same rates apply if you need to repay the cost of fuel your employer has paid for that was used for private mileage.

Your employer could choose to pay for all your fuel, including that used for personal journeys. But this is a whole different topic, which we cover in detail in our Free fuel feature.

What if I use my own car on a business trip?

In that case, different rates apply. These approved mileage rates are higher than those that company car drivers can claim, because they reflect other running costs as well as fuel.


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