Drivers across the UK are bracing for increased travel costs as HMRC's new Advisory Fuel Rates (AFR) take effect from March 1, 2024. This quarterly review heralds significant changes primarily for petrol and diesel vehicle owners, though electric car users will continue to see their rates remain favorable.
For diesel vehicles, the reimbursement rate for cars with engines of up to 1,600cc will rise from 11 to 12 pence per mile (ppm). Diesel cars powered by engines between 1,601 and 2,000cc will maintain their rate at 13ppm; those exceeding 2,000cc will also remain unchanged at 17ppm. These adjustments are based on the current diesel price, which stands at 146.1 pence per litre, as established by HMRC.
Petrol drivers are likewise preparing for adjustments. Specifically, cars with engine sizes between 1,401cc and 2,000cc will experience an increase from 14p to 15p per mile. Conversely, vehicles under 1,400cc will continue to be reimbursed at 12ppm, and larger petrol engines above 2,000cc will keep their rate at 23ppm. This pricing is reflective of the petrol cost, which sits at 138.7 pence per litre.
Meanwhile, electric vehicle users will continue to benefit from a lower advisory electricity rate of 7ppm, unchanged from previous assessments. This lower rate provides employees with company cars the opportunity to claim back fuel costs less offsetting them against petrol and diesel car owners. HMRC derived this figure based on the electrical efficiency of 3.57 miles per kilowatt-hour, factoring domestic electricity costs of 25.24 pence per kilowatt hour.
These advisory fuel rates not only help employees track their business mileage but also clarify the taxable benefits of using company vehicles. According to the HMRC guidelines, rates should only be applied when reimbursing employees for business mileage or when employees cover the costs of fuel for private journeys. Using these rates outside of these contexts can lead to complications.
Through the advisory fuel rates, businesses aim to streamline vehicle usage reimbursement among employees. If the mileage claimed matches or is lower than the prescribed advisory fuel rates, there will be no taxable profit to declare, and no Class 1A National Insurance will be incurred. Conversely, if actual travel costs are verified to be higher, businesses can move to use their own rates to reflect those expenses.
For those who accurately record private mileage, the advisory rates can assist significantly when calculating how much employees owe for personal fuel costs, avoiding any fuel benefit charge. Nonetheless, where repayment does not match the advisory rate, employees may end up incurring taxable profit if they cannot substantiate their mileage claims.
HMRC will continue to review these rates every three months, with upcoming adjustments scheduled for June 1, September 1, and December 1. The organization ensures these rates remain up to date, based on the latest petrol and diesel prices provided by the Department for Energy Security and Net Zero (DESNZ), alongside LPG figures from the Automobile Association.
The August index from DESNZ showed increasing energy prices, which may very well influence subsequent advisory fuel rate updates. Employers and employees alike are encouraged to stay informed about these rates to facilitate accurate reimbursements and avoid any potential tax issues.
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With the clock ticking down to March 1, drivers are urged to check their reimbursement rates closely as they adjust to the changing costs of their company vehicles. The latest guidelines will have ramifications for many as the costs of day-to-day driving align with economic shifts across the country.
Keep vigilant about HMRC updates for future adjustments to the advisory fuel rates as they help define compliant business practices for private travels with company cars.