fuel nozzle inserted into car at petrol station

Advisory fuel rates explained

For drivers operating within a commercial fleet, refuelling at petrol stations while on the job is an absolute necessity. The cost associated with refuelling, however, is not universal when comparing routes like-for-like.

That’s because there are many external factors that could affect the cost of refuelling, including the type of engine a company car uses, as well as its fuel efficiency. Should, then, the driver be solely responsible for covering the cost of petrol, despite having no control over the specifications of the company car they’re given?

The government believe not, which is why they help businesses determine how to fairly reimburse employees who drive for commercial purposes – by publishing advisory fuel rates that set out an approximate cost of fuel based on car efficiency. In this article, we’ll explain how these advisory fuel rates work, and what to look out for if you’re a fleet operator.

What are advisory fuel rates?

Advisory Fuel Rates (AFRs) are set by the government each quarter. They’re designed to give businesses a reasonable estimate of how much drivers should be paying for fuel, accounting for how many miles per gallon a vehicle should be able to cover (on average) based on its engine size.

AFRs help to ensure that drivers are fairly reimbursed for any miles they travel for business purposes, whether that entails operating HGVs or city taxis. They have two main applications:

  1.  Serving as a guideline for fuel costs to make it easier to reimburse employees for any miles travelled for business purposes.
  2. If businesses pay all of employees’ travel costs, then AFRs can help to calculate how much drivers need to repay for any fuel used for private travel.

These are the only instances in which AFRs are applicable.

How HMRC calculate advisory fuel rates

Calculating the precise rate of fuel consumption for every company car used in the UK simply isn’t feasible at scale, and so HMRC devised a system for calculating AFRs that takes into account:

  • Engine size.
  • Miles per gallon – using an average based on manufacturer’s guidelines.
  • Fuel prices – based on the Department for Business, Energy, and Industrial Strategy recommendations.

Fuel prices are, therefore, estimated, and rounded to the nearest penny.

The ideology underpinning AFRs is to ensure that drivers pay a fair price for commercial fuel in the long run. It’s crucial to acknowledge, then, that these rates are ‘advisory’. If your fleet cars are more fuel efficient than the advisory rates, then you could be exempt from fuel benefit charge.

Conversely, if your drivers are having to pay higher than the AFRs for commercial fuel, the difference is as taxable profit and classed as earnings under Class 1 National Insurance rules.

Advisory fuel rates in 2022

It’s crucial to always check the latest government guidelines to find out which advisory fuel rates currently apply. As of January 2022, the advisory fuel rates were as follows:

Engine Size Petrol – rate per mile LPG – rate per mile
1600cc or less 13 pence 9 pence
1601cc to 2000cc 15 pence 10 pence
Over 2000cc 22 pence 15 pence
Engine Size Diesel – rate per mile
1600cc or less 11 pence
1601cc to 2000cc 13 pence
Over 2000cc 16 pence

These rates change frequently, and are reviewed four times per year by HMRC, on the first day of March, June, September, and December.

Fully electric cars are comparatively cheaper to run than petrol, diesel, or LPG equivalents, and are consequently cheaper – at 5 pence per mile. Hybrid cars, however, are treated as petrol or diesel cars when calculating AFR.

Petrol station attendant filling up car

What do advisory fuel rates mean for businesses?

Now that we’ve covered what AFRs are, here are our tips on how you can manage them as a fleet operator.

Accurately log all business mileage

Crucial to calculating the exact price of fuel your drivers are paying is understanding precisely how many miles they are covering. In the modern world, the most practical way of achieving this is through digital technology.

For example, at Fuel Card Services we offer an all-in-one software product called MileageCount which automatically records each mile travelled by your drivers and reports to a centralised database; making it easy to generate accurate mileage records for all fleet vehicles.

Beyond saving you time on admin and money on mileage claims, this software could empower you to make calculations around how much to reimburse your drivers for fuel, with a high degree of accuracy. Failing to do so could result in HMRC imposing car fuel benefit at a later date when your business is audited.

Be clear on how company car petrol is paid for

Having a legitimate and well-thought-out process for ensuring drivers are adequately compensated for fuel costs is crucial. However, communicating your process to drivers and ensuring they can get to grips with it at a glance is also a must for businesses.

It may therefore be wise to review how you communicate your stance on AFRs and your internal processes to drivers. Should you be publishing a policy on your website, are you providing written documentation on your company policies, and do drivers understand your policies?

Regardless of whether your business model involves retrospectively reimbursing drivers for fuel, or paying all travel costs up front and claiming money back from your workforce, having clear communication around how the system works is crucial. It may affect recruitment, as prospective employees may appreciate transparency and clarity from your business’ end.

We hope this article has helped shine a light on why advisory fuel rates matter and explain how they work. One final note from us is that these rates do not apply if drivers are using their own vehicles to drive on behalf of a company, so it’s worth assessing how exactly AFRs fit into your business model.

How can Fuel Card Services help?

At Fuel Card Services, we specialise in helping businesses save money on their fuel costs. On the one hand, a fuel card from our range of branded cards could make a real impact to your bottom line for every mile driven by your team.

On the other, our MileageCount software and advanced telematics service can be used to properly track your driver’s routes, and plan routes efficiently. Calculating advisory fuel rates could therefore become a breeze with the right technology in place.

If you’re interested in taking your fleet operation to the next level, our Tele-Gence technology can give drivers access to live traffic updates that make route planning more efficient and give you insights into their driving habits to help become more efficient with fuel consumption.

Tele-Gence also synchronises seamlessly with your fuel card account, making them the perfect pairing for keeping your fuel costs and consumption as low as possible. If you think your fleet could benefit from these services, get in touch today and see how we could help you.

An illustration of an electric vehicle at a charging point

How fleets could get more miles from electric vehicles

With concern about the environment on the rise and strict emissions targets in place to curb climate change, it is hoped electric vehicles could make a big contribution to lowering the country’s carbon footprint.

However, electric vehicle range remains a worry for some. Indeed, according to a recent survey by the AA, two of the biggest factors in putting people off making an EV purchase are lack of local charging points and being caught short on longer journeys.

Yet much of this so-called ‘range anxiety’ is likely to prove unfounded. Most fleet owners should actually find the latest EVs will have all they need to meet the needs of the majority of their drivers on a day-to-day basis.

So, how can you make the switch to greener vehicles and get more miles from your fleet? Here are a few ideas.

Choose cars with the best range

It might sound obvious, but the best way to start is by looking at which electric vehicle batteries offer the longest range straight from the forecourt.

Thanks to continuing improvement in battery technology, plenty can now go some 300 miles or more on a single charge. That means your drivers should be able to cross the country before needing to plug their vehicles back in again – and shorter trips will be a doddle.

The most well-known brand in the EV market is undoubtedly Tesla, which was pioneering in the field and usually has several models in most ‘top ten’ lists at any one time. However, every marque from Mercedes to Nissan and BMW to Jaguar now also offers its own new green vehicles.

With a range of price points available, that means there is sure to be something to suit the needs of your fleet and offer you maximum ‘juice per journey’.

To provide just a couple of examples, according to the Sunday Times’s round-up of the newest EVs, the Tesla Model S Plaid will get you a 390-mile range, while the BMW iX xDrive50 boasts 373.

You can also check out the RAC’s latest recommendations here.

Drive to optimise mileage

Once you have your electric cars, you will find that the way they are driven has the ability to increase or decrease mileage. To make the most of each charge, offer your fleet drivers these simple tips:

  • Drive smoothly to reduce consumption from acceleration
  • Reduce speed, as the US Department of Energy suggests a 10 mph decrease can lower energy use by 14 per cent
  • Make the most of regenerative braking by leaving the function switched on and using it to slow down before you use the brake pedal
  • Keep heating and air conditioning use to a minimum if possible
  • Don’t carry too much weighty cargo
  • Optimise routes before journeys to cover less ground

Another notable way to get greater range from electric vehicles is to stay on top of maintenance. By keeping tyres inflated to recommended levels, checking fluids and replacing air filters, a battery’s range can be extended quite significantly.

Using vehicle telematics might also be ideal in this regard, as it will ensure servicing is scheduled regularly. It can also collect data from fleets about driving and charging patterns, helping owners see where economies can be made and training improved.

Research the best ways to charge

EVs charging up at public charging points

Public

The infrastructure of public UK charging points is improving all the time, something that is essential given the ban of new petrol and diesel cars from 2030 onwards.

According to the Department for Transport, the number of public chargers for EVs has increased by nearly 500 per cent in the past five years alone. That means wherever you go, you should no longer run the risk of being caught short mid-journey.

Indeed, with more than 18,000 charging points across the UK, it means there are now twice as many as there are petrol stations. Many are also rapid chargers to provide full power in a far shorter time, something that could be a huge bonus to business drivers.

Motorists can find them easily by looking up their nearest power points via tools like Zap Map and Apple Maps if they find they’re in need of a power-up mid-journey.

Furthermore, the government has earmarked £500 million for its Project Rapid motorway charging network and £200 million for charging network expansion, so this public grid should be ample to support most business drivers going forward.

However, it is worth remembering that some public charging points offer power at a cost, whether that’s pay-as-you-go or via an electric charging card akin to a fuel card.

Home

Many business drivers have company cars that are taken home at the end of the working day, so overnight charging could be a viable option. KPMG suggests 70 to 80 per cent of fleet EVs are currently already charged at employees’ homes in this way.

It is worth remembering that off-road parking will be necessary in this case, though, as will a method of claiming back the expense.

Workplace

As EV uptake increases, more businesses might be considering having their own charging points installed within workplaces for maximum efficiency. Of course, this will incur an initial outlay, but it may prove more economical in the long run.

The government offers financial support as part of its Workplace Charging Scheme that could potentially offset the expense, while utilities providers may also provide discounts for the electricity on a subscription basis.

More guidance on electric car charging points for UK businesses is available via the Energy Saving Trust.

Mobile?

It was recently reported that the RAC is planning on introducing mobile charging services for EVs, while rentable power banks for long-distance EV drivers are another option being put forward to boost range. Although this technology may be some way off, it could be another way of decreasing any lingering range anxiety for fleets going forward.

There are many benefits of electric cars and, with some research and a little planning, more businesses could soon be making the most of them. Perhaps it’s finally time to put the myths about mileage to bed and adopt greener vehicles for your fleet now. Get in touch with our expert team and find out how you can make the change to electric vehicles.

Calculating taxes with coins, calculator and toy car

Do company drivers save money by claiming for private fuel?

For drivers of company cars, it is possible to have their employers pay for their private fuel. However, the number of drivers making use of this benefit has been declining in recent years.

When drivers use their company car for personal use, they accumulate private miles. This mileage could be quite small, however if the driver were to use the vehicle in multiple cross-country journeys over the year, their private miles would add up extensively.

Therefore, having your private fuel paid for by your employer may seem like a great deal. Despite this, however, there is a reason drivers are choosing to simply reimburse their employers for the fuel instead.

Car Fuel Benefit Charge

Whether your employer pays for all of your fuel or not, you will already be paying tax for your company car. This amount depends on the specific vehicle and engine, the listed price when new, and the CO2 emissions measured in grams per kilometre (g/km).

This is referred to as the benefit in kind charge, and is added to your taxable income for the year. Online calculators are available to work out how much tax you’ll be paying for your specific company car.

When your employer covers your private fuel, you become subject to an additional tax – the Car Fuel Benefit Charge.

This extra charge can negate any benefits of having your employer pay for your fuel, depending on the type of car and your usage.

For example, imagine you are doing 4400 private miles in a diesel car with CO2 emissions of 100g/km. As a basic rate tax payer (20%) In 2021, you would be paying £1,377.60 in tax for this benefit, whilst the value of the free fuel you have used would be just over £645. In this example, having your employer pay for your private fuel is financially detrimental.

In fact, in this vehicle, you would have to be doing over 9396 private miles just to break even. This is potentially very unrealistic. In 2019, the average UK driver was only doing 4400 private miles.

Silver coins stacked in front of grey toy car

Reimbursing your employer

These figures show that the only way to financially benefit from your employer paying for your fuel is by doing enough private mileage, so the overall cost of your used fuel is greater than the Car Fuel Benefit Charge.

The alternative would be to reimburse your employer for any fuel used during your private mileage. By doing so, one would eliminate the Car Fuel Benefit Charge.

You’ll need to monitor your private mileage over the year to calculate how much you should be repaying your employer. You can do this by keeping your receipts, but keeping track of this is easier with a fuel card account.

Multiply your mileage by the HMRC’s advisory fuel rate for your vehicle. Assuming the engine size of your vehicle is between 1601cc to 2000cc, that rate is 11p per mile in 2021.

By multiplying this rate with the average UK private mileage gives us a cost of £484 to be reimbursed to the employer.

This is instead of paying £1377.60 in car fuel benefit charge, and saving £827 in the process.

Few company car drivers claim private fuel

As of 2020, only 12% of company car drivers were receiving the benefit of having all of their fuel paid for by their employer. This figure has been falling over the last decade. In 2010/11, 250,000 drivers were having their fuel paid for by their employer, costing a total of £360 million in tax. By 2018/19, only 110,000 drivers were receiving these benefits.

This is likely due to the higher than average number of private miles required by the driver to break even. Also, rising fuel prices would have encouraged drivers to evaluate their situation more carefully. They might have noticed that their savings were being nullified by the Car Fuel Benefit Charge.

If you are one of the 12% that still claim private fuel, consider using the above calculations. You can determine whether you could be saving money by simply reimbursing your employer instead.

To find out more about how your company could be making great savings on fuel, get in touch with our team – we’re happy to help.

Claiming business miles – a guide to business mileage allowance

Driving to deliver goods, meet clients or just commuting between work sites can quickly rack up costs, especially for larger fleets. Businesses can also be affected by frequent, short journeys too. But, there are ways to reduce travel your businesses expenditure.

HM Revenue & Customs (HMRC) grants a ‘business mileage allowance’ to each company vehicle that is in professional use. There are, however, rules that could affect your eligibility. The way your business is structured can also have an impact.

Business vs. personal use

It’s very important that you clearly distinguish what ‘professional use’ is.

Some employees and business owners only ever use company vehicles whilst working. Using a company vehicle in this way would most definitely fall into professional use quite comfortably.

For employees who take their company vehicle home with them for use in their own time, personal and professional mileage must be separated and reported as such. Journeys such as commuting to and from work will not qualify for tax relief as this is not classed as professional use.

Claiming mileage on personal vehicles

Cars and vans that are classed as ‘personal’ (i.e. owned by a member of your fleet staff) can claim back a mileage allowance of 45p for the initial 10,000 miles in a single tax year. Anything above this threshold can be reclaimed at 25p per mile. This policy is also designed to cover maintenance too.

Motorcycle owners can claim back 24p per mile and this remains the same regardless of how far they travel in the financial year.

It doesn’t matter if an employee uses more than one ‘personal’ vehicle in a single year, the tax is calculated using the combined mileage of all of their vehicles.

Distinctions for company vehicles

By contrast, a ‘company’ vehicle claims relief based on fuel expenditure. The amount you can claim varies depending on the type of fuel used, as well as the size of your engine:

Engine Size Petrol LPG
Up to 1400cc 10p 7p
1401cc – 2000cc 11p 8p
More than 2000cc 17p 12p

*Advisory Fuel Rates from December 2020

It’s also important to note that these numbers aren’t static. They’re dictated by AFR (Advisory Fuel Rates) from the Treasury. Global fuel trends cause them to fluctuate: it’s therefore worthwhile checking back every three months to see if the figures have changes.

Engine Size Diesel – amount per mile
1600cc or less 8p
1601cc – 2000cc 10p
Over 2000cc 12p

*Advisory Fuel Rates from December 2020 (Diesel)

As you can see from the second table, the rates change for diesel vehicles. Most notably, the biggest change can be found in the engine size, which stand at 1600cc or less, 1601 to 2000cc and over 2000cc respectively.

Claiming business mileage allowance

Man's hand refuelling car

As you claim for fuel expenditure under a company car’s mileage allowance, the AFR pricing table is a useful guide when you’re setting a fuel expense policy for your business. This will help give you the confidence that your policy is fair and cost-effective for everyone involved.

In some fleets, drivers will pay for their own fuel themselves and then claim the mileage allowance they are owed on their Class 1 National Insurance contributions, up to the thresholds we have outlined above, alternatively, a company can pay for the fuel while reclaiming the tax themselves.

Whatever the case may be, a robust payment record is essential.

The HMRC requires that you supply all receipts and records of all fuel expenditure. Fleets that have personal and company vehicles need to keep track and make sure that their records are HMRC compliant. Generally, there needs to be a set of dates, figures and total mileage to claim back everything you’re due.

While it’s ultimately your decision as to how employees use their fuel cards, setting out a clear policy and tracking their usage is important. MileageCount  records and reports every mile of every journey in any vehicle, to help reduce your mileage claims by up to 21% and save valuable admin time for your drivers.

At Fuel Card Services, we want you to enjoy the benefits of using fuel cards without the headache and cost of unnecessary taxation. A major benefit we offer is the provision of HMRC-approved invoices.

By combining all transactions for cardholders into one monthly invoice, your finance team can be saved the effort and time going through the many expense receipts from staff, whilst also saving users time and expense at the fuel pump.

If you’re interested in the many benefits of fuel cards, you can choose from our wide range of our products. We offer fuel cards from all of the biggest brands – Shell, Esso, BP, plus many more. As a result, we’re sure you’ll be able to find the one that’s perfect for you.

Hand lifting a fuel nozzle at petrol station

Understanding fuel expenses: How can you claim tax relief?

Understanding fuel expenses: How can you claim tax relief?

If you’re using a vehicle for work purposes, being able to claim tax relief for costs like fuel expenses is essential. But do you know how to do this, and what usage will be eligible for these benefits?

While larger fleets may have systems in place to track this, for smaller companies, this is an often-overlooked benefit. However, it’s one that could offer a vital saving at a time when budgets are tight.

These allowances let you offset the cost of fuel by claiming for every mile you drive. But how should you go about recording and filing for this, and what benefits can you expect to see?

What business expenses can I claim for?

Large and small businesses, sole traders, contractors and directors of limited companies can all take advantage of mileage allowances to reduce their burden when they pay tax.

HMRC allows you to make claims for every mile you drive, provided the journey is for work purposes. This allows you to cover some of the costs of running a company vehicle.

Helping reduce your fuel expenses is the most notable benefit of this, but the relief can also be helpful in managing other running costs. However, in order to keep things as simple as possible, mileage expenses are calculated as a single claim.

This means you can’t make separate claims for individual motoring expenses such as:

  • Fuel
  • Electricity
  • Road tax
  • MOTs
  • Repairs

Importantly, the vehicle used doesn’t have to be registered to the company. You can also claim for mileage incurred on a personal car or van, provided you only claim for your business trips.

What classes as business usage?

The key requirement for making mileage claims is that the trip must have been for a business purpose. But what does this mean in practice?

HMRC has specific guidance for what does – and does not – count as a business journey, so it’s vital you familiarise yourself with these rules.

To qualify as a business journey, you must be travelling between workplaces or between appointments. In general, the guidance says that if the trip is essential for work to be carried out, you can claim business mileage on it.

There are a few additional points to be aware of. Firstly, the business usage must be the primary purpose of the trip – so if you’re taking a personal journey with a stop along the way for a business reason, this does not count as business usage.

Also, a daily commute to a workplace, whether this is from home or any other location that’s not a permanent workplace, is not classed as business-related.

How do mileage allowance payments work?

Closeup of car dashboard showing dials and odometer.

Mileage allowance payments allow employees to be reimbursed by their employer for business trips taken in their personal vehicles. Businesses do not have to pay tax on these reimbursements.

This is based on a flat rate per mile. For the first 10,000 miles a car or van travels in a given tax year, this equates to 45p per mile. For each mile after that, the rate drops to 25p.

However, if an employee takes a passenger on a journey, these trips can claim an extra 5p per mile. This requires the passenger to also be an employee of the company and be travelling for business.

What are advisory fuel rates?

For business journeys made using company cars, employers can use HMRC’s advisory fuel rates when claiming business expenses. They are also used when workers have to repay the cost of any fuel used for personal travel.

These are calculated every quarter and are based on the engine size and fuel type of the car. For example, from 1st September 2020 the advisory fuel rate for petrol cars is 10p per mile for engines of up to 1,400cc, 12p for those between 1,401cc and 2,000cc, and 17p for engines over 2,000cc.

Let’s say, therefore, an employee buys petrol for a company car with a 1,400cc engine and records 300 miles of business usage. The employer would then reimburse them £30 (at 10p a mile) for these fuel expenses, which is a tax-free business expense.

On the other hand, if they are to fill up using a company account, and travel 100 miles for personal reasons, they would be required to repay their employer £10.

Businesses can set their own reimbursement rates to better reflect their own circumstances. For instance, if they use more fuel-efficient vehicles, they may set a lower figure per mile.

However, if they pay a rate higher than the approved mileage rates, and cannot show a vehicle is actually costing more to run per mile, the excess will be considered taxable profit by HMRC.

How can I make mileage tracking easier?

To claim business mileage, whether as a company or a sole trader, you’ll need a record of your business usage.

This requires a log of the dates when any business travel took place, the purpose of the journey, the starting and destination points, and the total miles covered. You’ll also need receipts for any fuel purchases.

Although HMRC won’t ask you to submit all this information every tax year, you are required to hold on to these records for five years in order to show them during any audit.

This can quickly become complex to manage if you’re still doing it by hand. Therefore, it pays to use specialist mileage tracking tools to make this easier. This software can automatically keep a full record of any journey taken and calculate claims.

As a result, employees can save huge amounts of time that would otherwise be spent on admin. Meanwhile, firms can be confident the claims they’re submitting to HMRC are accurate.

Get in touch with our experts to find out more about mileage tracking solutions and how they could save you time and money.