28 June 2022

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As petrol and diesel prices rise, HMRC has increased company car Advisory Fuel Rate (AFRs) in June to support. Here’s what you need to know.

HMRC has increased the Advisory Fuel Rates (AFRs) from June 1st by up to 3p per mile to reflect the increased cost of petrol and diesel.

It’s the second quarter in a row that rates have been revised upwards, as a combination of factors including constraints on Russian oil exports and domestic UK inflation, have pushed up fuel prices.

The AFRs are the tax-free reimbursement rates employees driving company cars can use to claim back fuel bought for business purposes, and are based on petrol and diesel prices taken from figures produced by the Department for Business, Energy and Industrial Strategy, and the official average fuel consumption figures provided by manufacturers.

For this set of calculations those prices were 165.1p per litre for petrol, and 179.7p per litre for diesel. The rates are reviewed every quarter in March, June, September, and December.

AFRs only apply to employees using company cars. The rates can be used to either reimburse employees for business travel in their company cars, or if employees need to repay the cost of fuel used for private travel.

If the mileage rate a company pays its drivers is no higher than the advisory fuel rates for the engine size and fuel type of the company car, there is no taxable profit and no Class 1A National Insurance to pay.

What are the rates now? From June 1st, they are as follows:

Petrol company cars

The AFR for vehicles with engines up to 1,400cc is now 14ppm, and increase from the previous figure of 13ppm. Vehicles with an engine size from 1,401-2,000cc increase by 2ppm to 17ppm, with those over 2,000cc increases to 25ppm – up from 22ppm.

Diesel company vehicles

The AFR for company cars with an engine larger than 2,000cc has increased by 3ppm to 19ppm. A similar 3ppm jump has been applied to engines from 1,601-2,000cc, up to 16ppm, while those with engines up to 1,600cc have seen the AFR increase from 11ppm to 13ppm.

Hybrid cars are treated as either petrol or diesel, depending on their internal combustion engine, rather than the electric element, for AFR purposes.

Advisory Electric Rate

Alongside the AFRs is the Advisory Electric Rate - the amount electric company car drivers can claim back for business mile reimbursement - and this was increased in March to 5ppm from 4ppm after rises in the cost of electricity, but no further increase was announced in June.

So, what’s next?

If prices continue to rise, it could be assumed that the next AFR review will result in rates increasing again. However, what happens will be announced in late September.

Read 10 Questions Answered by Paul Holland: Advisory Fuel Rates for a breakdown of AFR.

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