11 July 2022
We spoke to our MD of UK Fleet, Paul Holland about advisory fuel rates (AFRs) to get his thoughts on the questions you need the answers to.
1 What are AFRs?
Advisory Fuel Rates are figures set by HMRC which can be used by drivers to claim back business (and private) mileage in company cars. They’re a set of pence per mile figures based on engine size and fuel type (petrol, diesel and LPG), that if reimbursed at the agreed rate are free of Fuel Benefit Tax and Class 1A National Insurance charges.
2 Where can you find the rates?
You can find the latest rates (and historic ones too) on the HMRC website here.
3 How are they calculated?
The rates are worked out by using official fuel economy data supplied by manufacturers of vehicles sold to businesses and fuel prices taken from analysis by the Department for Business, Energy and Industrial Strategy.
The rates are reviewed at the start of every March, June, September and December, and the new figures are announced later that month.
4 Do they apply for all cars doing business mileage?
AFRs can only be used for company cars, either leased or outright purchased. They’re not for use with private cars used for business, or rental cars. They shouldn’t be used with pool vehicles either, as technically these should only ever be used for business, and so fuel should be fully paid by the business.
5 Can an employer pay more than the AFR figure?
In some circumstances it is possible, but the employer has to be able to prove with facts and figures why the cost per mile rate it’s using is higher than the official one, or the costs reimbursed will incur Fuel Benefit Tax and Class 1A National Insurance charges.
The flip side is that an employer can pay less than the established AFR if the company car is proven to be more cost- and fuel-efficient on a pence per mile basis.
6 How does the AFR work with private mileage?
It’s incredibly simple. Say your employees all have fuel cards - all they have to do is pay for all their fuel with the card and note the amount of private and business mileage they do.
Then they apply the relevant AFR to their total private miles and pay their employer back that amount. Nobody incurs any tax and for the employee, especially at the moment, it could help cashflow too as they are paying for their private fuel at a later date.
7 Can you use AFRs for vans?
There aren’t any official figures for company-owned vans. HMRC advises that businesses should work out their own reimbursement rate based on the cost-per-mile of running their vans.
8 Should the AFRs be revised more regularly?
It’s difficult to say. At the moment, with the cost of fuel having risen so much and with all the volatility around oil production and prices, you could certainly argue that the AFRs should be looked at more regularly than every three months.
The issue is that changing them regularly requires every business to keep on top of them, and apply the right rates at the right time, which is all extra administration.
9 Are the AFRs high enough?
When the set of rates were announced in March there was discussion that the AFRs were not keeping up with the increase in fuel price. But there was a larger readjustment in the June figures, with some AFRs increasing by up to 3p per mile.
The thing to remember though is that what is reimbursed is not solely based on the cost of fuel. It’s also about how fuel-efficient the car is.
As an example, 1,000 miles a month at 35mpg with fuel at 190p per litre would cost £247. Reimbursed at the 1,401-2,000cc petrol rate of 19ppm, a company car driver is able to claim back £190.
But if that driver is more economical and manages 45mpg, they only spend £191 on fuel and come out pretty much even. So in some ways it’s up to the driver to maximise the opportunity to claim back everything they can.
10 What about electric cars?
Fully electric company cars have their own set of rates, called the Advisory Electric Rate. That’s currently set at 5p per mile and some critics have claimed it is too low, especially considering the increased cost of electricity at home, work and at public charging stations.
But again, it depends on other factors. A 60kWh car plugged overnight at an off-peak tariff of 19p per kWh would cost £11.40 to charge to 100%. If that car achieves 25kWh per 100 miles (which is very efficient driving), it has a range of 240 miles. Claiming 5p per mile means a driver is reimbursed £12. So it can be done with economic driving and clever charging strategies, albeit this is at the lo