Enter Your E-mail

HMRC have published revised Advisory Fuel Rates, which take effect from 1 January 2008.

Fuel Advisory Rates are mileage rates set by HMRC to reflect actual annual running costs of cars. If the rate paid per mile of business travel by employers is no higher than the advisory rate for the particular engine size and fuel type of the car, HMRC will accept that there is no taxable profit and no Class 1 NICs liability. The aim is to save time for both employers and HMRC by setting out some figures that can be used in the majority of cases. They give employers more certainty about what the mileage rates that they choose to apply mean for tax and National Insurance contributions (NICs).

The rates only apply where employers:

• reimburse employees for business travel in their company cars, or
• require employees to repay the cost of fuel used for private travel.

The rates do not apply in any other circumstances. In particular, employees driving company cars are not entitled to use them to calculate a deduction if employers reimburse them at lower rates. Such calculations should continue to be based on actual costs incurred.

If an employer pays mileage rates that are higher than the advisory rates but is unable to demonstrate that the fuel cost per mile is indeed higher, there is no fuel benefit charge if the mileage payments are made solely for miles of business travel. Instead, any excess will be treated as a taxable profit and as earnings for Class 1 NICs purposes. The employee can obtain relief for any actual expenses which have not been reimbursed.

Providing that all of the miles of private travel have been properly identified, HMRC will accept that there is no fuel benefit charge, and therefore no Class 1A NICs liability, where the employer uses the appropriate rate from the current table (or any higher rate) to work out the cost of fuel used for private travel that the employee must repay to the employer. Again, this reflects the fact that they are intended to reflect actual average fuel costs.

Even if it seems that the actual cost of the fuel could be more than the current advisory fuel rate, it is only in exceptional cases that HMRC will consider arguing that a higher repayment rate should apply. For example, where the employee drives a very large-engined company car that achieves fewer than 16 or 17 miles to the gallon. HMRC will always accept that the guideline rates can be used to calculate the amount that the employee must make good where the engine size is 3 litres or less.

The rates applying from 1 January 2008 are as follows:

Link

 HMRC: Company Car - Advisory Fuel Rates