Muras Matters: Company Cars Changes to Advisory Fuel Rates

This Bulletin is aimed at company car drivers (and their employers) who are not provided with fuel for private mileage

HM Revenue and Customs (HMRC) have updated their advisory fuel rates for company cars with effect from 1 September 2025. The rates are intended to give guidance to employers about what is an acceptable fuel allowance to reimburse employees for use of fuel, without creating a tax or NIC problem, when on business in their company car.

From 1 September 2025, HMRC has for the first time split the advisory electric rate to reflect where drivers charge their company cars, recognising the huge price discrepancy between street and home charging for electric vehicles.

Background

Where an employer reimburses fuel to an employee using their company car on business, HMRC accepts there is no taxable or NICable benefit as long as the rate paid per mile is no higher than the relevant advisory rate. If, however, the actual cost of the fuel used is in excess of the advisory rate a higher allowance can be paid as long as the employer has detailed records to justify the higher payment.

Where an employer pays for all fuel for a company car but requires an employee to reimburse any private travel, HMRC accepts there is no taxable fuel benefit if the reimbursement is at the appropriate advisory rate, as long as the engine size is 3 litres or less. In exceptional cases, where the engine size is greater than this and the actual cost of fuel is in excess of the advisory rates (and hence an insufficient amount has been reimbursed by the employee), HMRC may argue a higher repayment rate should apply.

It is important to note that, under both circumstances, detailed mileage records should be maintained to substantiate any mileage claim or repayment.

HMRC also has an Advisory Electricity Rate for fully electric cars which it now updates on a quarterly basis, although it should be noted that electricity is not deemed a fuel for car fuel benefit purposes. With effect from 1 September 2025 HMRC has introduced two advisory electric rates to reflect where drivers charge their company cars and the price differences between street and home charging. From 1 September 2025, there is now a 8p per mile rate for home charging, and a 14p rate when using public charging spots.

Rates and date of change

HMRC review the rates every quarter as follows – on 1 March, 1 June, 1 September and 1 December. The previous quarter’s rates can be used for up to 1 month from the date any new rates apply.

With effect from 1 September the revised advisory rates are as follows:

If you would like further information regarding the application of the advisory rates please contact our Tax Director, Jenny Marks.

To see our other news items please visit our Muras Baker Jones – Blog.