Guidance on Advisory Fuel Rates

AFR

AFR does not apply to individuals who opt to use their private car for business use, and are looking to claim back the mileage as an expense. AFR is only applicable to those individuals who have a company car and are entitled to get their fuel paid.

AFR is designed to pay out within 15% of the mean fuel consumption of an average car; this is subdivided depending on the size of the engine.

Different rates not only apply depending on the size of the engine, but also the type of fuel used: diesel, petrol and LPG-converted vehicles.

The prices are reviewed quarterly with companies expected to update their rates accordingly. These reviews may sound very frequent but it enables HMRC and employers to react reasonably quickly to swings in the price of fuel. With the surge in prices seen in recent years, this has become particularly important.

If drivers are able to manage their vehicle's fuel more efficiently than the average, they can profit from the AFR quite legitimately. Conversely, if an individual drives in a way which leads them to consume more fuel in their vehicle, they will end up having to subsidise their use of the car.

Deviating from the AFR
As can be seen from the name, the AFR is only an advisory rating; employers are not forced to use this level of payments in order to meet expense claims from company car drivers.

However, if an employer chooses to deviate from the AFR they must be able to demonstrate the underlying reason why. For example, if an individual was required to drive over rough terrain for example, thus burning more fuel, they could secure an exemption from HMRC.

Although the AFR has no statutory legal recognition, employers who pay more than this without demonstrating a valid reason for it face incurring a penalty.
If an employer cannot prove that the rate being paid does not include an element of profit for the member of staff, they will have to treat the excess amount as taxable and subject to both NI and Income Tax.

Advisory Rates from 1st September 2015

fuel rates table

Hybrid cars are treated as either petrol or diesel cars for this purpose.