What are advisory fuel rates and how do they work?

Advisory Fuel Rates (AFRs) 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.

The previous set of AFRs were published in March 2022, and this latest significant update has been forced upon HMRC by the record-high prices that drivers are being forced to pay at the pumps.

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: 

If you run a hybrid or plug-in hybrid car as your company vehicle, HMRC regards it as either petrol or diesel where AFRs are concerned.

If you run an electric company car, the rate of 5ppm is unchanged from March.

It’s fair to expect rates to change again on September 1 when they are reviewed again. These current AFRs use an estimated price of 165.1p per litre for unleaded and 179.9p per litre for diesel, and as everyone is painfully aware, the price at the pumps is already quite a bit more than that.

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.

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 official average economy figures 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.

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.

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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