HMRC Advisory Fuel Rates Update for Company Cars Takes Effect March 1
HM Revenue and Customs (HMRC) is launching a significant update to its advisory fuel rates system, which will come into force on March 1, 2026. This revision applies to petrol, diesel, and electric company cars used for business purposes, setting the standard mileage reimbursement rates that employers can pay without triggering tax liabilities.
Petrol and Diesel Rate Details
Under the new measures, petrol-powered company cars will continue to receive the same mileage payments as in the previous quarter. Specifically, vehicles with engines of 1,400cc or smaller will be reimbursed at 12p per mile, unchanged from December 2025. For engines between 1,401cc and 2,000cc, the rate remains at 14p per mile, while larger engines over 2,000cc stay at 22p per mile.
Diesel cars follow a similar pattern, with engines up to 1,600cc continuing at 12p per mile. Engines between 1,601cc and 2,000cc maintain a rate of 13p per mile, and those larger than 2,000cc qualify for 18p per mile. These diesel figures are calculated based on a diesel price of 141.3p per litre, ensuring consistency in reimbursement calculations.
Tax Implications and Compliance
HMRC clarifies that if the mileage rate paid does not exceed the advisory fuel rates for the specific engine size and fuel type, there will be no taxable profit and no Class 1A National Insurance contributions required. This provision helps businesses manage costs while adhering to tax regulations.
Employers have flexibility in certain scenarios. If company cars are more fuel-efficient or if business travel costs exceed the guideline rates, businesses can use their own rates to better reflect their actual expenses. However, if higher rates are paid without justification, any excess must be treated as taxable profit and earnings for Class 1 National Insurance purposes, unless it is solely for business travel.
Importantly, there will be no fuel benefit charge if private travel mileage is accurately recorded and employees repay at the correct or higher rate for fuel used privately. Additionally, advisory rates are not mandatory when employees fully cover private fuel costs through repayments at a lower mileage rate.
Impact on Business Operations
This update aims to streamline reimbursement processes for company car usage, providing clear guidelines for employers to follow. By maintaining current rates, HMRC ensures stability in business travel budgeting, reducing administrative burdens and potential disputes over mileage claims.
The advisory rates serve as a benchmark for fair compensation, balancing employer costs with employee needs. Businesses are encouraged to review their policies to ensure compliance with the new effective date, avoiding unintended tax consequences.
Overall, the HMRC shake-up reinforces the importance of accurate record-keeping and transparent reimbursement practices, supporting both economic efficiency and regulatory adherence in the corporate sector.
