From September 1, HMRC will publish updated Advisory Fuel Rates (AFRs) at a "per mile" rate, a move that will affect how employers reimburse staff using company cars for business journeys and how employees repay fuel costs for private trips. The quarterly review, conducted by the Labour government's tax authority, ensures the rates reflect current average fuel costs.
What Are Advisory Fuel Rates?
Advisory Fuel Rates are set by HMRC every three months to represent the average fuel cost of running a company car for business purposes. Employers use these rates to reimburse employees for business mileage in company cars, or to determine how much employees should pay back for fuel used on private journeys. The rates are reviewed quarterly because fuel prices fluctuate, making it crucial for businesses to stay updated with the latest figures.
According to Joe Lytwyn, a personal finance expert at thimbl.com, "HMRC's Advisory Fuel Rates are designed to reflect the average fuel cost of running a company car for business journeys. They're primarily used by employers when reimbursing staff for business mileage or when employees repay fuel used for private journeys in a company car. They're reviewed every three months because fuel prices don't stand still, so it's important that businesses keep up with the latest figures."
Common Misconceptions About Mileage Rates
One of the biggest misconceptions is that these rates apply to everyone who drives for work. In reality, AFRs are specifically intended for company cars. Employees using their own vehicles for work are covered by different HMRC rules, such as the Approved Mileage Allowance Payments (AMAP) system, which has its own set of rates. This distinction is vital for both employers and employees to understand to ensure correct reimbursement and tax treatment.
Another common misunderstanding is that employers can arbitrarily choose any mileage rate without tax implications. Joe Lytwyn warns, "If an employer reimburses above HMRC's Advisory Fuel Rate without being able to justify the higher cost, the excess could become taxable. Equally, if employees are reimbursed below the advisory rate, they may be able to claim tax relief on the difference in some circumstances. It's always worth checking how your employer calculates mileage payments if you're unsure."
Why Quarterly Reviews Matter
The quarterly review process is essential because fuel prices are volatile. While adjustments are not always dramatic, using outdated rates can lead to incorrect reimbursements or employers applying the wrong figures. Joe Lytwyn explains, "The rates are normally reviewed every quarter to reflect changes in fuel prices. While adjustments aren't always dramatic, using outdated rates could mean employees are reimbursed incorrectly or employers apply the wrong figures. Keeping up to date helps ensure claims remain accurate and tax treatment stays in line with HMRC's guidance."
Impact on Businesses and Employees
For businesses, staying current with AFRs is not just a matter of accuracy but also of compliance. Incorrect mileage payments can lead to tax liabilities, which could be costly if not addressed promptly. Employers should review their mileage reimbursement policies each quarter to align with the latest AFRs. For employees, understanding these rates can help them verify that their reimbursements are correct and claim tax relief where applicable.
The September update will be the third review of 2026, following previous adjustments in January, April, and June. The new rates will apply from September 1 and remain in effect until the next review in December. Businesses and employees alike should monitor these changes to ensure their mileage claims are accurate and tax-efficient.
Staying Informed
HMRC publishes the updated rates on its official website, and businesses can also subscribe to alerts for updates. For those with questions about how the rates apply to their specific circumstances, consulting a tax advisor or using resources like thimbl.com can provide clarity. As Joe Lytwyn advises, "It's always worth checking how your employer calculates mileage payments if you're unsure."
