All you need to know about the new advisory fuel rates for company car users.
For any business, keeping track of your financials is vital.
So, keeping track of relevant legislation that will affect them is imperative.
Starting March 1st 2023, HMRC has introduced new Advisory Fuel Rates (AFR) for company car drivers claiming back fuel expenses from their employer.
But who is affected? What’s changing? And when?
Rosemary Bookkeeping is here to help. Our experts have compiled a guide on everything you need to know about Advisory Fuel Rates and recent changes to them.
Who is affected by changing Advisory Fuel Rates?
Mileage rates and any changes apply in certain circumstances for employees who use company cars.
These rates only apply when:
Reimbursing employees for company car business travel:
According to guidance from HMRC, if the mileage rate you pay is lower than the AFR for the engine size and fuel type of the car, there will be no taxable profit and no Class 1A National Insurance to pay.
If your cars are more fuel efficient or if the cost of business travel is higher than the AFR, you can use personalised rates to reflect your situation.
However, if your mileage payments are only for business travel, you pay rates higher than the advisory rates, but cannot show that your fuel cost per mile is higher, there will be no fuel benefit charge.
Instead, you’ll have to treat any excess as taxable profit and earnings for Class 1 National Insurance purposes.
Employees repay the cost of the fuel for private travel:
If you correctly record all private travel mileage and use the correct rate (or higher) to calculate how much your employees repay you for fuel used for personal travel, there will be no fuel benefit charge.
You will also not need to use the advisory rates where you can show that employees cover the total cost of private fuel by repaying at a lower mileage rate.
When are Advisory Fuel Rates changed?
Advisory Fuel Rates are subject to regular change. HMRC reviews rates quarterly.
The most recent review took place at the beginning of this month: 1st March.
They are reviewed again on:
- 1st June
- 1st September
- 1st December
What’s changing with Advisory Fuel Rates?
The changes that have come into force this month affect both the rates themselves and how they are calculated by HMRC.
To understand the new rates, we need therefore to look at how they are being calculated.
Changes to how Advisory Fuel Rates are calculated
The changes made to calculations by HMRC are designed better reflect fuel and energy prices.
Previously, when reimbursing electric company car drivers, the rate used by many companies was based solely upon annual figures from the Department for Business, Energy & Industrial Strategy (BEIS) and the electrical energy consumption values from the Department for Transport (DfT).
Moving forward, HMRC is continuing to use the BEIS and DfT data but is also incorporating figures published by the Office for National Statistics (ONS) to inform electricity rates.
How are the new Advisory Fuel Rates calculated?
To calculate Advisory Fuel Rates, the mean miles per gallon (MPG) is taken from manufacturers’ information.
This considers annual sales to businesses (Fleet Audits average from 2019 to 2021).
For liquefied petroleum gas (LPG), the MPG used is 20% lower than for petrol due to lower volumetric energy density.
As per the HMRC website, the ‘rates per mile’ are shown rounded to one decimal place, but the final advisory fuel rates are rounded to the nearest whole penny.
Rates per mile which end in 0.5 are rounded down to the nearest whole penny for the advisory fuel rate when the underlying unrounded figure ends in a number less than 0.5.
When the underlying unrounded figure ends in a number greater than 0.5 it is rounded up to the nearest whole penny.
The value of the Annual Equivalent Rate is calculated by taking the cost of electricity per mile for each model provided by the DfT and electricity price data from BEIS and ONS.
Based on company car sales data across the last 3 years, a weighted average value of the electrical costs per mile for a fully electric car is then calculated.
Hybrid cars are treated as either petrol or diesel cars for advisory fuel rates.
How have Advisory Fuel Rates Changed?
The headline changes revolve around changes in the measurement of the Advisory Electricity Rate (AER).
In terms of AFR, the headline is that petrol, diesel and LPG have all seen a reduction to reflect falling fuel prices.
Petrol:
Rates for petrol cars have reduced, with rates for petrol vehicles up to 1,400cc down 1ppm to 13.
Petrol vehicles with an engine of 1,401-2,000cc have also decreased to 15ppm.
Vehicles with an engine over 2,000cc have seen the largest cut from 26ppm to 23ppm.
The new AFR for petrol company cars as shown on the HMRC website are as follows:
Diesel:
HMRC has also reduced reimbursement rates for diesel vehicles across the board.
For engines up to 1,600cc, AFR has fallen to 13ppm and from 1,601-2,000cc has been reduced to 15ppm.
AFR rates for diesel cars with an engine size of more than 2,000cc have also been reduced to 20ppm.
The new AFR for diesel company cars as shown on the HMRC website are as follows:
LPG:
The changes to LPG are not as universal.
The rate for LPG vehicles up to 1,400cc remains the same (10ppm).
However, the AFR has been cut to 11ppm 1,401-2,000cc vehicles and LPG vehicles greater than 2,000cc has also been reduced from 18 to 17ppm.
The new AFR for LPG company cars as shown on the HMRC website are as follows:
Electric:
Taking effect 1st March, fully electric cars increased from 8-9p per mile (ppm).
Please be advised that following any changes to AER or AFR, you can use the previous rates for up to 1 month from the date any new rates apply.
All a bit much?
With legislation changing all the time, it can be difficult to keep track of expenses as a small business.
And with fuel rates changing 3 times a year, it can feel impossible to get a handle on what to do and when.
At Rosemary Bookkeeping, we are on top of all current legislation and are experts in making sure you know which way is up when it comes to your business financials.
By contacting your local expert, you benefit from regular advice and support on all the latest changes to AFR and much more, as well as bespoke and professional management of your bookkeeping needs.
To see how outsourcing your books to your friendly local bookkeeping service could help you, find your nearest Rosemary Bookkeeping business or call 0345 862 0072 today.
