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Commercial Angles' Newsletter - April 2002

Advisory fuel rates for company cars

If a company provides any fuel whatsoever for an employee's private use, the position is quite clear - the driver must be assessed on the annual P11D forms at the full rate for private fuel benefits-in-kind. To avoid the possibility that drivers may be assessed for several hundred pounds of tax for only a few litres of fuel, many companies do not provide fuel for their vehicles. Their drivers make expense claims to cover the costs of fuel consumed on company business. This raises the question of the appropriate means of reimbursement which will not attract any charge for personal tax. The Inland Revenue has recently provided some guidance on this matter. The Inland Revenue notes are reproduced below.

By popular demand we have published guidelines on fuel only mileage rates for company cars. The aim is to save time for both employers and the Revenue by setting out some figures that can be used in the majority of cases. They will give employers more certainty about what the mileage rates that they choose to apply mean for tax and National Insurance contributions (NICs).

The rates will apply where employers:reimburse employees for business travel in their company cars, or
require employees to repay the cost of fuel used for private travel.

We are not suggesting that employers should always use these rates for reimbursing employees for business travel in company cars. The advisory rates represent average fuel costs, and employers may wish to set rates which better reflect their particular circumstances. For example, where the cars in the fleet are fuel efficient, employers may prefer to reimburse employees at lower rates than those outlined here.

Employers reimbursing employees for the cost of fuel used for business travel

If the rate paid per mile of business travel is no higher than the guideline rate for the particular engine size and fuel type of the car, we will accept that there is no taxable profit and no Class 1 NICs liability.

The advisory rates will, though, not be binding where an employer can demonstrate that the cost of business travel in company cars in the fleet concerned is higher than the guideline mileage rates - perhaps where employees need to use particular types of car such as 4x4s to cover rough terrain.

If an employer pays mileage rates that are higher than the guideline rates but is unable to demonstrate that the fuel cost per mile is indeed higher than the guideline rates, there is no fuel scale charge if the mileage payments are made solely for miles of business travel. Instead, any excess will be treated as a taxable profit and as earnings for Class 1 NICs purposes.

Employers who require employees to repay the cost of fuel used for private travel

Providing that all of the miles of private travel have been properly identified, we will accept that there is no fuel scale charge, and therefore no Class 1A NICs liability, where the employer uses the appropriate rate from the table below (or any higher rate) to work out the cost of fuel used for private travel that the employee must repay to the employer.

Even if it seems that the actual cost of the fuel could be more than, for example, 14p a mile for a 2.5 litre petrol car, it is only in exceptional cases that we will consider arguing that a higher repayment rate should apply. For example, where the employee drives a very large-engined company car that achieves fewer than 16 or 17 miles to the gallon. But we will always accept that the guideline rates can be used to calculate the amount that the employee must make good where the engine size is 3 litres or less.

The advisory rates will not be binding where an employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile.

How the fuel figures were set

We have based the figures on the fuel cost per mile of cars that have been on sale as new during the last couple of years, with particular reference to the 20 most popular fleet cars.

After looking at fuel consumption figures we settled on the fuel cost figures in the table below.

Engine Size (Petrol) Fuel Cost (per mile) Engine Size (Diesel) Fuel Cost (per mile)

1400cc or less
10p

1401cc to 2000cc
12p
Up to 2000cc
9p

Over 2000cc
14p
Over 2000cc
12p

When do the fuel figures start to apply?

You can use the figures in this table to negotiate dispensations for mileage payments for business travel in company cars from the date that this article was placed on the Inland Revenue website.

We will accept the use of the figures in this table for reimbursement by employees of fuel used for private travel from the start of the 2001-02 tax year.

Will the rate per mile figures change if fuel prices go up or down?

We aim to provide employers with as much certainty as possible by keeping the fuel rates unchanged where there are modest variations in fuel prices. We will review them only if average fuel prices vary by more than 10% from the prices that were used when the rates were set. (The rates were set at a time when the UK average price for unleaded petrol was around 77 pence per litre and diesel 78 pence per litre).

And, to provide employers with certainty, even though fuel prices have fallen since the rates were set, we can give a commitment now not to reduce the advisory fuel rate figures before 5 April 2003 unless the UK average price of fuel falls more than 15% below the average figures that applied when the rates were set.

VAT

Customs and Excise will also accept the figures in the table for VAT purposes.

Articles from previous newsletters