HMRC has confirmed that a new advisory fuel rate of 16p per mile now applies to diesel cars with engines sized between 1601cc and 2000cc, a reduction of 1p from the previous 17p rate. The updated rates came into force on September 1, according to the tax authority.
New rates and how they affect company car drivers
The latest advisory fuel rates, published by HMRC, set the reimbursement rate for diesel vehicles in this engine category at 16p. The rates are used by businesses when processing expense claims for employees driving company cars for work purposes.
At advisory fuel rates, employees will not incur any tax liability. If a business reimburses below the advisory rate, employees may be eligible for a tax rebate. Conversely, if reimbursement is above the advisory rate, company car drivers may be liable for additional tax, unless they can explain why the cost is higher.
Hybrid and electric vehicle guidance
Company car drivers can reduce benefit-in-kind costs by paying back their private mileage. Hybrid cars are treated as either petrol or diesel cars for the purpose of these rates. The Advisory Electric Rate for fully electric cars is 5 pence per mile.
According to Tripcatcher, an expenses management platform, the HMRC Advisory Fuel Rates are the recommended reimbursement rates for employees reclaiming business travel, usually in company vehicles. They are also known as HMRC company car mileage rates.
How to calculate mileage claims and VAT
Tripcatcher explains that these advisory fuel rates are also used to calculate the fuel portion of a mileage claim, which is important when claiming VAT on mileage expenses. The advisory fuel rate is based on the car's engine size and fuel type.
The site adds that HMRC updates the advisory fuel rates quarterly to take account of changes in fuel prices. The rate can also be used to calculate the fuel portion of a mileage claim, which is particularly relevant for employees who drive their own car for business and whose employer claims VAT on mileage expenses.
