Also known as Advisory Fuel Rates (AFRs), the HMRC company car mileage rates are set by the government and employers can use them to reimburse their employees for any business related travel in a company car.
Company car mileage rates can only be used for business travel in a company car. For claiming business travel expenses in your personal car our article about using your private car for business miles can help.
Understand company car mileage rates with the answers to these 4 simple questions:
- What are the current HMRC company car mileage rates?
- Why should I use HMRC company car mileage rates?
- What if the employer pays rates higher than the HMRC guidelines?
- What happens if the employer is paying lower fuel rates than the HMRC guidelines?
Or skip ahead to the commonly asked questions:
- What if the employee uses the company car for private trips?
- What if I’m self employed?
- What if the employee uses a private car for business purposes?
- How can I learn more about mileage claims?
- Quick Tip – How can I make sure that I claim the right mileage on a company car?
1. What are the current company car mileage rates?
These are the current Advisory Fuel Rates (AFR):
|1400cc or less||11p||7p|
|1401cc to 2000cc||14p||8p|
|1600cc or less||10p|
|1601cc to 2000cc||11p|
Important to know:
- An employee can only claim expenses on the fuel they use for business miles, not for personal trips.
- If your company car is fully electric, the Advisory Electricity Rate (AER) is 4 pence per mile.
- For hybrid cars, the AER does not apply and the car is treated as either a petrol or a diesel car.
- When the rates change, you can still use the previous rates for up to one month from the date the new fuel rates start. This is particularly useful if the rates go down.
- It’s important to remember that the AFR rates can be used when claiming VAT on mileage expenses.
If the employee drives 5,000 business miles using a petrol car which engine size is over 2000cc, he/ she could claim £1,050 back from the employer:
How does the HMRC decide on the fuel rates?
The HMRC Advisory Fuel Rates are guidelines based on present fuel costs (oil prices) and applied MPG (miles per gallon), which means they are as accurate as possible. This also takes into account road conditions, seasonal factors and the efficiency of vehicles.
To maintain accuracy, the HMRC Advisory Fuel Rates are revised quarterly. To avoid missing updates and ensure you have the right reimbursement rates in your business, fill out your contact details below so we can send any important HMRC updates straight to your inbox:
2. Why should I use company car mileage rates?
Employers can set their own company car mileage rates, so why are the HMRC Advisory Fuel Rates beneficial? These rates are designed as guidelines to help businesses follow the correct procedures for tax and Class 1A National Insurance costs in terms of fuel for company cars.
When an employer pays a rate the same as, or lower than, the advisory rates, the HMRC recognises there’s no taxable profit and no Class 1A National Insurance to pay.
However, employers can set their own rates themselves which may better reflect their specific situation. This is useful, for example, if their company cars are more fuel efficient or the business fuel expenses are higher than what would be covered by the Advisory Fuel Rates.
3. What if the employer pays rates higher than the HMRC guidelines?
A company car mileage rate above the HMRC Advisory Fuel Rates is useful if the employer can prove that the fuel cost per mile is higher than the HMRC guidelines. Otherwise, this would mean that the employer is essentially paying the fuel for some of their employee’s personal travel.
Any personal travel which employers pay for requires them to pay a fuel benefit charge. This is essentially a tax on any free fuel employers are providing to their employees for personal travel. Employers do not have to pay this on any fuel used for business related travel. If employers are paying more than is being used for business expenses, any excess is treated as taxable profit for Class 1 National Insurance purposes.
4. What happens if the employer is paying lower fuel rates than the HMRC guidelines?
If the employer is giving the employee a lower rate than the Advisory Fuel Rates, then the employee can claim back the difference from the HMRC at the end of the tax year, as we can see below:
The AFR for diesel cars which engine size is 1600cc or less is 10p per mile. Let’s assume that the employer only pays 8p per mile.
If the employee drives 2,000 business miles using a diesel car with this engine size, he/ she could claim £200:
However, since the employer pays only 8p per mile, the employee would be reimbursed only £160:
The employee would have to claim the remaining £40 from the HMRC at the end of the tax year.
AFR for Diesel car 1600cc: 10p per mile = £200
Employer pays: 8p per mile = £160
HMRC covers the difference: 2p per mile = £40
What if the employee uses the company car for private trips?
If an employer is paying for all the fuel in a company car, then the employee would need to pay back their employer for any fuel used for personal trips. Otherwise, the transactions would need to be reported to the HMRC and the employer would have to pay fuel benefit tax on any personal miles, as we discussed earlier in this article.
So, as long as the employee reimburses all the fuel costs for personal trips in the same tax year then the employer won’t have to pay anything to HMRC. Alternatively, the employer can pay for all of the fuel used in a company car, if the employee agrees to take on the responsibility of paying the fuel benefit tax themselves.
If, as an employee, you’re driving a large number of miles for personal use then you may want to opt out of the fuel tax benefit and simply pay your employer for any personal mileage in a company car. The current fuel benefit tax is based on £23,400 which is then multiplied by the car’s ‘Benefit-in-kind’ (BIK) percentage and your salary tax band.
What if I’m self employed?
As self employed, you cannot technically have a company car because legally there is no difference between you personally and your company. Instead, you need to use mileage allowances or actual expenses. You can find out everything you need to know in our guide to claiming mileage as self employed.
What if the employee uses a private car for business purposes?
Often it might make more sense for employees to use their personal cars for business related trips. In this case, they can still claim mileage allowances for their personal car but there are certain conditions they need to meet in order to do this in the most tax efficient way. Find out more about using a private car for business purposes in our full article.
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.
Quick tip – How can I make sure that I claim exact mileage on a company car?
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.
*This article was updated in March 2019 with the current AFR rates.