HMRC Announces New Advisory Fuel Rates: Impact On Petrol, Diesel, And Electric Car Owners

Petrol and diesel car drivers will face changes to their expenses this week following an HMRC announcement, while electric vehicle owners will benefit from lower rates.

According to a report from the Chartered Institute of Payroll Professionals (CIPP), HMRC's updated Advisory Fuel Rates will take effect from 1st March, impacting company car costs. These rates apply exclusively to employees with company vehicles.

The revised rates are used when reimbursing staff for business mileage in their company cars or when employees cover the cost of fuel for private journeys. They should not be used in any other circumstances.

Company Car Business Mileage Reimbursement

According to the Advisory fuel rates guidance, if your mileage rate matches or is lower than the advisory fuel rate for the company car's engine size and fuel type, there's no taxable profit and no Class 1A National Insurance to pay.

If your cars are more fuel-efficient or your business travel costs exceed the guideline rates, you can use your own rates to reflect your actual expenses.

If you pay more than the advisory rate but can't prove higher fuel costs per mile, there won't be a fuel benefit charge if the payments are solely for business travel. Instead, you must treat the extra amount as taxable profit and earnings for Class 1 National Insurance.

Employee Repayment For Private Mileage Fuel

If you accurately record all private mileage and use the correct rate (or higher), there won't be a fuel benefit charge when determining how much employees owe you for fuel used for personal trips. You don't need to use the advisory rates if you can demonstrate that employees cover their private fuel costs by repaying you at a lower mileage rate.

HMRC reviews these rates every three months, on 1st March, 1st June, 1st September, and 1st December. The latest petrol and diesel prices are from the Department for Energy Security and Net Zero (DESNZ), and the LPG (UK average) figures are from the Automobile Association.

How The Rates Work

The rate for diesel cars with engines up to 1,600cc will rise by one penny, from 11ppm to 12ppm. Petrol cars with engine sizes between 1,401cc and 2,000cc will also see an increase, from 14ppm to 15ppm.

However, rates for larger diesel cars will stay put, with vehicles between 1,601cc and 2,000cc remaining at 13ppm and those over 2,000cc still at 17ppm. For electric company car drivers, the advisory electricity rate remains at 7ppm.

This figure uses the 'Domestic electricity cost per kilowatt-hour,' an annual figure from the Department for Energy Security and Net Zero, updated with the Office for National Statistics' newest electricity price estimate. For these rates, hybrid cars are classified as either petrol or diesel.

Birmingham Live reports that the previous rates can still be used for one month after the new rates take effect. These updated advisory fuel rates bring changes for petrol and diesel car drivers, while electric vehicle owners see no change.

Staying informed about these rates is crucial for both employers and employees to ensure accurate reimbursements and avoid tax implications. Check back with HMRC for future rate adjustments.