Do you or one of your employees use a company car? Do you know how to use the HMRC’s Advisory Fuel Rates for any mileage allowance or claims? It might sound complicated, but not to worry, in this article we’re going to cover everything you need to know about using Advisory Fuel Rates for a company car.
What are Advisory Fuel Rates?
Advisory Fuel Rates (AFR), sometimes known as company car mileage rates, are the HMRC recommended mileage rates for employers to use when their employees are using company cars. They are used to calculate how much employees need to reimburse their employer for personal travel in a company car.
The key questions you need answers to:
- What are the current HMRC Advisory Fuel Rates?
- When can I use Advisory Fuel Rates?
- Why should I be using HMRC Advisory Fuel Rates?
- How are Advisory Fuel Rates calculated?
- Why do Advisory Fuel Rates change?
- What are the different types of Advisory Fuel Rates?
- Claiming VAT in a personal vehicle using Advisory Fuel Rates
- What is the Company Car Tax?
- How can I learn more about mileage claims?
- Quick Tip! What’s the easiest way to claim mileage using Advisory Fuel Rates?
1. What are the current HMRC Advisory Fuel Rates?
The HMRC Advisory Fuel Rates 2019 are:
|1400cc or less||11p||10p||7p|
|1401cc to 2000cc||14p||11p||8p|
Advisory Fuel Rates change every quarter when the HMRC review them: March, June, September and December of every year.
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2. When can I use Advisory Fuel Rates?
The HMRC company car mileage rates can only be used when employees are making business trips in a company car.
If you’re still not sure when to use these mileage rates, you can check out more information on claiming mileage expenses in a company car.
AFRs are to be used when drivers are claiming mileage expenses for their business trips. They can be used in three situations:
- To reimburse employees for their business mileage in company cars
- For employees to repay fuel expenses for private travel
- To calculate VAT on a business trip
3. Why should I be using HMRC Advisory Fuel Rates?
The HMRC fuel rates are in place to help companies ensure compliance regarding taxing their employers and Class 1A National Insurance. This means that as long as an employer uses the rates set by the HMRC (or lower), they will not have to pay any tax on business travel costs in a company car.
4. How are Advisory Fuel Rates calculated?
The HMRC fuel rates are calculated from fuel prices and miles per gallon figures. However, these rates are guidelines only.
A company is well within its rights to pay a rate lower than these advised rates, within reason. If company cars are proven to be more fuel efficient, companies could lower reimbursement rates.
5. Why do Advisory Fuel Rates change?
They change with the oil prices. As you can see, all fuel prices went up in 2018. A surge in the value of oil pushed up most prices – at the fastest rate in two decades. The HMRC keeps its rates relevant to the current oil prices by updating every quarter.
6. What are the different types of Advisory Fuel Rates?
Advisory Fuel Rates – Petrol:
About 81% of company cars use diesel fuel with 19% using other fuel types, mostly petrol. Petrol cars are beneficial for drivers on short business trips, whereas and most companies have high mileage fleets. Even with the low operating cost, petrol is less popular.
Advisory Fuel Rates – Diesel:
Businesses who use diesel cars as their company cars need to pay an extra surcharge of 4%, compared to petrol, hybrids and electrics. This is called a Diesel Supplement – in place by the UK government to tackle nitrogen dioxide concentrations.
Diesel cars are currently in the limelight for their toxic emissions. As a result, sales saw a drop of 40% in the last two years.
Advisory Fuel Rates – LPG:
LPG is more environmentally friendly than other sources of energy. Though all energy sources will release carbon dioxide, when compared to oil, LPG only releases 81% of the carbon dioxide that oil does. Regardless of the benefits, LPG represents such a small proportion of UK vehicles – only 1% at the start of 2018. As a result, not many places offer to provide LPG, and awareness is fizzling out.
Advisory Electric Rates – AER:
An amalgamation of the steady increase in fuel and sales of electric vehicles reaching a record high in 2018, brought the HMRC to introduce Advisory Electric Rates (AER) for fully electric cars.
This satisfied many companies and drivers asking for reimbursement rates when using fully electric cars as company cars.
These rates aren’t determined by engine size like the AFRs are since they are powered entirely by electricity stored in batteries. So, they have one rate for every car: 4p per mile.
It is important to remember – If a company is using electric cars or hybrid cars for their fleet, it is essential to set a strategy around how and where vehicles will be charged.
The number of companies in the UK using plug-in vehicles is estimated to reach half a million units by 2021.
There are many reasons why companies would choose to opt for hybrid cars for company cars. Coming back to company car taxes, most hybrids offer low CO2 emissions. This leads to much-reduced company car tax compared with petrol or diesel rivals.
7. Claiming VAT in a personal vehicle using Advisory Fuel Rates
Advisory fuel rates are for company cars only. If you or your employee use personal vehicles for business trips, then you will need to use the HMRC Approved Mileage Allowance Payments (AMAPs) to determine your mileage reimbursement rates. This is because AFRs only cover fuel whereas AMAPs also cover other costs like insurance, wear and tear of the vehicle and road tax.
Company car fuel rates, however, are only for covering fuel expenses since the employer is already paying for the car. This means we can use these rates to find out how much of your annual business mileage allowances were spent on fuel, regardless of whether you’re using a private or company owned vehicle. This is important because when you pay for fuel it includes VAT, which you can claim back.
Example: If you travel 1000 miles in your own car with an engine capacity of 2000c, your mileage allowance claim, using the HMRC Mileage Allowance Payment (AMAP) rates, would be 45p per business mile.
The Advisory fuel rates, however, are only 21p per mile, so £210 can be attributed just to fuel.
The current VAT rate on fuel is 20%. Businesses can therefore claim ⅙ of the fuel portion of the mileage claim. The fuel portion is divided by 6 as it already includes VAT at 20%.
That being said, If we divide £210 by 6 we get the 20% spent on VAT which in this case would be £35:
So you can claim back £35 on VAT out of your total mileage claim of £450.
Confused? Have a look at our other blog post about claiming back VAT on business mileage for more information.
8. What is the Company Car Tax?
There is a certain tax that drivers need to remain compliant themselves, however, and not the employer. This is called the Company Car Tax.
Using a company car is seen as a Benefit in Kind (BiK) – an added bonus on top of a salary – for employees.
However, the downside is drivers will have to pay company car tax if they use it for personal journeys. This includes travelling to and from work.
The amount of tax you pay depends on:
- The CO2 emissions
- The value of the car, also known as the P11D value
- How often you use the vehicle
How can I learn more about mileage claims?
There are a lot of HMRC rules to understand when it comes to recording business mileage and managing mileage claims. Reading through all the information on different websites can get confusing, which is why we have put together a complete guide to mileage claims, where our experts at Autotrip go through everything that you ought to know.
9. Quick tip – What’s the easiest way to claim mileage using Advisory Fuel Rates?
Here at Autotrip, we’ve developed a solution that can help you keep track of your business mileage automatically.
Autotrip’s plug and play GPS tracker captures every drive employees make and our software calculates the mileage and VAT that businesses can claim, saving you time and money.
Find out how we make mileage simple at autotrip.com and see how we’ve recorded over 7.8M miles and 482,000 business trips in the past year, saving our clients 1000s of hours that would have been otherwise spent logging mileage manually.