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.

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.

What is Business Mileage and How Do You Claim It?

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 costs within 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.

Using a company car for personal use

It’s very important that you clearly distinguish what ‘professional use’ is and what ‘personal use’ is. Ensuring your fleet drivers understand what mileage can be claimed on business mileage allowance makes the process of claiming it much easier

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 13p 10p
1401cc – 2000cc 15p 12p
More than 2000cc 23p 18p

*Advisory Fuel Rates from June 2023

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 12p
1601cc – 2000cc 14p
Over 2000cc 18p

*Advisory Fuel Rates from June 2023 (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.

How to claim business mileage

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.

Tracking mileage and managing admin with MileageCount

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.

MileageCount is easy for both drivers and managers to use – get in touch today to find out more!

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.

Close up of a car speedometer and odometer

A guide to mileage tracking

Mileage tracking is a key part of any fleet management system. But it’s about much more than just keeping a log of how much distance your vehicles have covered.

An effective mileage management plan is essential for working out expenses, keeping track of drivers’ working hours and meeting your tax obligations. What’s more, it’s vital for reducing transport costs and keeping emissions in check.

However, traditional ways of doing this can be complex and time-consuming. So whether you’re a small firm in charge of a handful of company cars or managing a large fleet, modern tools will be hugely useful.

Here’s what you need to know about mileage tracking and how it can benefit your business.

What is mileage tracking?

Mileage tracking tools help you keep a complete, accurate record of your fleet’s activities. This will show how your vehicles are being used, which trips are eligible for tax deductions and more.

But simply making a note of the date and the odometer or the trip meter at the start and end of the journey is no longer enough. To be effective, you need to be recording:

  • Accurate mileage
  • Driving hours
  • Journey dates
  • Start and end destinations
  • Purpose of the trip
  • Fuel used

The evolution of mileage management

Close-up image of a man with receipts and a calculator

In the past, mileage management was a manual, tedious process. Expenses claims were reliant on pen and paper – or, more often than not, hastily-scribbled service station napkins – to log the miles driven. Each driver was responsible for entering their own details and calculating their own business miles.

The problems with this are obvious. The process is far too open to error or abuse, which means many companies end up overestimating their mileage.

For instance, one 2015 study found more than a third of drivers (36%) only updated their log once a fortnight or less. This would make it almost impossible to provide an accurate record of their activity.

What’s more, if HMRC decides to do a spot check and finds records don’t match up with fuel card invoices, the penalties can be high.

Fortunately, there are better solutions. Smartphone apps can provide a much simpler solution for logging driving times and mileage. Inbuilt GPS systems offer much greater accuracy and remove the need for any manual calculations.

However, they aren’t a silver bullet. Many apps still need the driver to remember to start and stop logging for each trip and enter further details.

This means they can be subject to errors. Some free versions also don’t include useful features like integration with accounting software.

This is where the latest generation of smart technologies comes in. Tools that can fully automate the process will be the future for many businesses, as they’re highly accurate and leave drivers with nothing to worry about.

How today’s mileage tracking tools work

Aerial view of cars on motorway with data overlay

Today’s solutions work in a number of ways. There will typically be several options that a firm can choose from to record mileage data and ensure it’s passed on to accountancy software.

For instance, one solution is to add a small device called a beacon to your vehicles. This runs in the background and automatically records journeys from start to finish, syncing with the user’s smartphone.

This means the driver never needs to press a button. It can even tell the difference between personal and business drives.

Alternatively, a GPS dongle can be used instead of a manual smartphone app. This will also capture the details of the vehicle automatically and accurately. All the driver has to do is plug it into a laptop or PC when they login to their online tracking software.

4 key benefits for your business

So what does this mean for your business? Getting this right will provide a number of benefits that allow you to save money and boost productivity. Here are a few of the key advantages of mileage tracking solutions.

1.  Reduced transport costs

First and foremost, these tools help you cut costs. A complete view of your company’s mileage allows you to identify any unnecessary journeys, avoid overestimations and improve future planning.

The effect of this can be huge. For instance, cutting the average mileage for a vehicle driving 12,000 miles a year by just 10% can lead to a £150 saving in fuel alone. Over a large fleet, this can quickly add up to a major bonus.

This is before you take into account the savings created by cutting out overestimations. Our research, for example, found the use of tracking tools reduces mileage claims by as much as 21%.

2.  Less time spent on admin

Automated tools also remove the need for time-consuming manual processes to record and upload mileage details.

Our research shows more than half of drivers (54%) spend more than two hours a month submitting mileage claims. One in ten even spend more than eight hours doing them – that’s over one working day a month just spent filling in forms!

Cutting out these requirements means your employees spend time on more productive activities. It’s great for managers as well. Expenses claims can be worked out automatically, so tax deductions or reimbursements are applied without manual input.

3.  Reduced emissions

A natural consequence of being able to reduce your mileage is that you’ll also cut your fleet’s emissions. This is an increasingly important consideration for many businesses, as managing your carbon footprint is a key part of any company’s social responsibility practice.

Encouraging the more efficient use of company vehicles – or dissuading workers from using their cars and making claims for personal trips – makes your fleet greener and cleaner.

4.  Improved accountability

HMRC has very strict requirements for the records you have to keep regarding your vehicle’s expenses. If you’re still collecting them manually and relying on spreadsheets, it’s easy for mistakes to be made or items to be missed.

This can be very costly. If you’ve been especially lax in your record-keeping, fines could date back for years. An automated mileage data capture solution therefore ensures HMRC compliance and gives you peace of mind.