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All you need to know about the new advisory fuel rates for company car users.

For any business, keeping track of your financials is vital.

So, keeping track of relevant legislation that will affect them is imperative.

On March 1st 2024, HMRC reviewed current Advisory Fuel Rates (AFR) for company car drivers claiming back fuel expenses from their employer.

In this blog post, our experts have compiled a guide on everything you need to know about the new Advisory Fuel Rates.


Who is affected by changing Advisory Fuel Rates?

Mileage rates and any changes apply in certain circumstances for employees who use company cars.

These rates only apply when:

Reimbursing employees for company car business travel:

According to guidance from HMRC, if the mileage rate you pay is lower than the AFR for the engine size and fuel type of the car, there will be no taxable profit and no Class 1A National Insurance to pay.

If your cars are more fuel efficient or the cost of business travel is higher than the AFR, you can use personalized rates to reflect your situation.

However, if your mileage payments are only for business travel or you pay rates higher than the advisory rates but cannot show that your fuel cost per mile is higher, there will be no fuel benefit charge.

Instead, you’ll have to treat any excess as taxable profit and earnings for Class 1 National Insurance purposes.

Employees repay the cost of the fuel for private travel:

If you correctly record all private travel mileage and use the correct rate (or higher) to calculate how much your employees repay you for fuel used for personal travel, there will be no fuel benefit charge.

You will also not need to use the advisory rates, where you can show that employees cover the total cost of private fuel by repaying at a lower mileage rate.


When are Advisory Fuel Rates changed?

Advisory Fuel Rates are subject to regular change. HMRC reviews rates quarterly.

The most recent review happens on the first of March.

They are reviewed on:

  • 1st March
  • 1st June
  • 1st September
  • 1st December

How changes are calculated

The changes made by HMRC reflect fuel and energy prices.

Previously, when reimbursing electric company car drivers, the rate used by many companies was based upon annual figures from the Department for Business, Energy & Industrial Strategy (BEIS) and the electrical energy consumption values from the Department for Transport (DfT).

Starting March 2023, HMRC also incorporated figures published by the Office for National Statistics (ONS) to inform electricity rates.

This year, they’ve utilized data from annual car sales volumes to businesses (Fleet Audits average for the last three years).


How are the new Advisory Fuel Rates calculated?

Advisory Fuel Rates are calculated when the mean miles per gallon (MPG) is taken from manufacturers’ information.

This considers annual sales to businesses (Fleet Audits average from 2020 to 2022).

For liquefied petroleum gas (LPG), the MPG used is 20% lower than for petrol due to lower volumetric energy density.

The ‘rates per mile’ are rounded to one decimal place.

The final advisory fuel rates are rounded to the nearest penny.

Rates per mile, which end in 0.5, are rounded to the nearest whole penny for the advisory fuel rate when the underlying unrounded figure ends in a number less than 0.5.

When the underlying unrounded figure ends in a number greater than 0.5, it is rounded to the nearest whole penny.

The DESNZ cost for pence per kilowatt hour is updated by the ONS consumer prices index for electricity.

This is to account for quarterly price variations.

Then, the value of the annual equivalent rate is calculated through the cost of electricity per mile for each model provided by the DfT and electricity price data from DESNZ and ONS.

A weighted average value of the electrical costs per mile for a fully electric car is then calculated using company car sales data across the last three years.

The advisory fuel rates are worked out from the fuel prices in these tables.

Hybrid cars are treated as petrol or diesel cars for advisory fuel rates.


How have Advisory Fuel Rates Changed?

The headline changes are the increase in LPG rates, immobility of electric rates and a decrease in petrol and diesel rates.

You can use the previous rates for up to 1 month from the date any new rates apply.

Petrol:

Rates for petrol cars have reduced, with petrol vehicles rates of 1,400cc or less down to 13p.

Petrol cars of 1401cc – 2,000cc are now 15p

And Petrol cars over 2000cc are 24p

Diesel:

Diesel rates have also decreased in a couple of areas.

Engines of 1600cc or less are now 12p, 1601-2,000cc are 14p, and over 2000cc are 19p.

LPG:

LPG rates have increased to 11p for engines up to 1400cc, 13p from 1401cc-2000c, and 21p for engines over 2000cc.

Electric:

On the 1st March, fully electric cars increase from 9p per mile (ppm) across the board.


Is all a bit much?

With legislation changing regularly, keeping track of expenses as a small business can be difficult.

And with fuel rates changing three times a year, it can feel impossible to get a handle on what to do and when.

At Rosemary Bookkeeping, we are on top of all current legislation and are experts in ensuring you know which way is up with your business financials.

By contacting your local expert, you benefit from regular advice and support on all the latest changes to AFR and much more, as well as bespoke and professional management of your bookkeeping needs.

To see how outsourcing your books to your friendly local bookkeeping service could help you, find your nearest Rosemary Bookkeeping business or call 0345 862 0072 today.

What is tax payment interest and how has it changed?

With March in full swing, two changes are in effect surrounding the interest of tax repayment.

Tax interest rates, enforced by HMRC, are set in legislation and linked to the Bank of England base rates.

There are two rates:
  1. Late payment interest
  2. Repayment interest

Why are late payments and repayments different?

These two rates are separate to remain in line with the policy of other tax authorities worldwide.

According to HMRC, it compares favourably with the commercial practice for interest charged on loans or overdrafts and interest paid on deposits.

What are the changes to tax payment interest?

In early February, the Bank of England’s Monetary Policy Committee met and voted to raise interest rates to 4%.

A move which they hope will tackle rising inflation pressures.

This is the tenth vote following which the committee has increased interest rates.

The changes, enacted on 13th February for quarterly instalment payments and 21st February for non-quarterly instalments payments, make rates their highest since November 2008.

This means the late payment interest rate applied to the taxes HMRC charges interest on increases to 6.50%. An increase of 0.5%.

Meanwhile, the repayment interest rates increased by 0.5% to 3%.

This repayment rate is set at the Bank Rate minus 1%, with a 0.5% lower limit.

What is the lower limit?

According to HMRC, the lower limit for repayment interest ensures taxpayers still get 0.5%, even when the base rate fell to 0.1%.

Repayment interest will be paid at 0.5% until the Bank of England raises the base rate above 1.5%. It will then increase with the base rate.

Late payment has been set at base rate plus 2.5%

Need help managing the numbers?

With rates changing all the time, it can be hard to keep track.

At Rosemary Bookkeeping, we are on top of all current legislation and are experts in ensuring you know which way is up regarding your business financials.

By contacting your local expert, you benefit from regular advice on the latest tax changes.

As well as bespoke and professional management of your bookkeeping needs.

Know what tax rates are and how to avoid them, trust your local expert.

To see how outsourcing your books to your friendly local bookkeeping service could help you, find your nearest Rosemary Bookkeeping business or call 0345 862 0072 today.