Drivers using company cars powered by petrol will see an adjustment in the mileage reimbursement rates from HM Revenue and Customs (HMRC) starting Tuesday, September 1. These updated advisory fuel rates, which are reviewed and adjusted quarterly, reflect changes in the cost of fuel and impact how employers reimburse employees for business travel or how employees repay the cost of fuel for private journeys.
Understanding Advisory Fuel Rates
Advisory fuel rates are established by HMRC to provide a guideline for employers when reimbursing employees for business mileage undertaken in company-provided vehicles. Conversely, these rates also apply when employees need to cover the cost of fuel used for personal trips in their company car. HMRC’s decision to update these rates every three months stems from the need to align them with the fluctuating prices of petrol, diesel, and electricity for electric vehicles.
The rates are differentiated based on engine size and fuel type. For petrol vehicles, the adjustments from September 1 are as follows:
- Engines 1400cc or below: The rate remains unchanged at 14 pence per mile.
- Engines between 1401cc and 2000cc: The rate also remains stable at 17 pence per mile.
- Engines above 2000cc: This category sees an increase from 26 pence per mile to 27 pence per mile.
These figures represent a significant shift compared to previous periods. For instance, in 2022, the rate for petrol cars with engines exceeding 2000cc was considerably lower, standing at just 15 pence per mile. The current adjustments signify a substantial rise in the recommended reimbursement figures for company car users in this engine bracket.
Impact on Company Car Drivers and Employers
The advisory fuel rates play a crucial role in the financial arrangements between employers and employees concerning company car usage. As explained by the Spanish manufacturer Seat, these rates are designed to mirror the typical expense of fueling a company car. The way these rates are applied can have tax implications for both parties.
Tax Implications of Reimbursement Rates
The mileage rate used by a business when processing expense claims determines the tax liability:
- At Advisory Fuel Rates: When an employer reimburses an employee at the exact HMRC advisory fuel rate, the employee generally incurs no tax liability on that amount. This is the standard practice for covering business mileage.
- Below Advisory Fuel Rates: If an employee is reimbursed at a rate lower than the advisory fuel rate, they might be eligible for a tax rebate. This scenario is less common for standard business travel reimbursement.
- Above Advisory Fuel Rates: Should an employer reimburse an employee at a rate exceeding the advisory fuel rate, the company car driver could be liable for additional tax. This is unless they can provide a justifiable reason for the higher cost, such as exceptional driving conditions or vehicle inefficiencies.
Furthermore, company car drivers have the option to reduce their benefit-in-kind (BIK) tax costs. They can achieve this by repaying their employer for the fuel costs associated with private mileage driven in the company vehicle. This proactive measure can lead to a lower overall tax bill for the individual.
Specific Use of Advisory Fuel Rates
HMRC emphasizes that these advisory fuel rates are exclusively for employees who use a company car. The authorized circumstances for their application are strictly limited to two scenarios:
- Reimbursing Employees: When an employer provides reimbursement to an employee for business travel undertaken using their company car.
- Employee Repayment: When an employee needs to repay the company for fuel costs incurred during private journeys made in their company car.
It is crucial for both employers and employees to adhere to these guidelines. Using the advisory fuel rates outside of these specified situations is not permitted and could lead to compliance issues.
Quarterly Review and Future Adjustments
The quarterly review process ensures that the advisory fuel rates remain relevant to the current economic climate and fuel market. As fuel prices continue to fluctuate, further adjustments to these rates can be expected in the future. Companies that operate company car fleets should stay informed about these updates to ensure accurate and compliant expense processing and tax management.
The increase for higher-engine petrol cars highlights the growing cost of fuel for these vehicles, prompting HMRC to update its guidance. Businesses relying on company cars for their operations should review their internal policies to align with the new rates effective from September 1, ensuring fair reimbursement and correct tax treatment for their employees.
