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
While everyone has been preparing for Christmas, HM Revenue and Customs (HMRC) changed their advisory fuel rates for company cars with effect from 1 December 2014. 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.
Where an employer reimburses an employee fuel when 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.
Rates and date of change
HMRC review the rates every quarter as follows – on 1 March, 1 June, 1 September and 1 December.
With effect from 1 December the revised advisory rates are as follows:
Engine size Petrol/hybrid LPG
1400cc or less 13p / 9p
1401cc to 2000cc 16p / 11p
Over 2000cc 23p / 16p
Engine size Diesel
1600cc or less 11p
1601cc to 2000cc 13p
Over 2000cc 16p
It is important to note that where business mileage in a company car is paid it must still be reported on forms P11D even if the advisory rates are used. It is then up to the employee to make a separate claim that the payment received was wholly exclusively and necessarily for the performance of their duties of employment.
To avoid this administrative burden, particularly in the season of goodwill, such expenses must be covered by a ‘dispensation’. This is a formal agreement with HMRC that certain expenses can be omitted from form P11D as long as they are satisfied that no tax liability is being avoided.
You may already have such an agreement in place but it is important to note that HMRC do review dispensations so you may well be required to update yours if it is a number of years old.
If you want any further information regarding the application of the advisory rates or obtaining a dispensation please contact our Tax Director, Jenny Marks.