Advisory Fuel Rates: updates from 1 December 2020

HM Revenue and Customs (HMRC) has updated the Advisory Fuel Rates (AFRs) which come into effect on 1 December 2020, for company car drivers requiring fuel costs from their employer. However, you can use the previous AFRs for up to one month from the date of the new rates. 

For vehicles up to 1,400cc engine (10ppm) plus over 2,000cc (17ppm), the AFR pence per mile (ppm) petrol rates are the same. However, the ppm reduces by one for those with engine sizes from 1,400-2,000cc.

The AFRs for diesel and Liquefied Petroleum Gas (LPG) powered vehicles are the same, but the new AFRs for petrol cars are as follows:

Engine size                Petrol – rate per mile             LPG – rate per mile

1400cc or less            10 pence                                 7 pence

1401cc to 2000cc       11 pence                                 8 pence

Over 2000cc               17 pence                                 12 pence

Engine size                Diesel – rate per mile

1600cc or less            8 pence

1601cc to 2000cc       10 pence

Over 2000cc               12 pence

When the mileage rates apply:

These AFRs only apply to employees who utilise a company car. Employers can use the rates if they require employees to repay the cost of fuel used for private travel, or need to reimburse employees for business-related travel using a company car.

These rates do not apply to any other circumstances.

Employees repaying the cost of fuel

If you record all private travel mileage and use the correct rate (or higher) to work out how much your employees must compensate you for fuel use, then there will be no fuel benefit charge.

If you can demonstrate that your employees can cover the full cost of private fuel, by repaying at a lower mileage rate, you do not need to utilise the AFRs.

Reimbursing employees

There will be no taxable profit and no Class 1A National Insurance (NI) to pay if the mileage rate you pay is no higher than the AFRs for the engine size plus fuel type of the company car.

For more fuel-efficient cars, or if the price of business travel is higher than the AFRs, use your charges to reflect your circumstance.

If you pay rates that are more expensive than the AFRs although cannot show the fuel cost per mile is higher, there will be no fuel benefit charge if the mileage fees are solely for company travel. However, any excess will need treating as taxable profit plus earnings for Class 1 NI purposes.

Hybrid cars

HMRC treats hybrid cars as either diesel or petrol cars for AFRs.

Electric cars

The advisory electricity rate for fully electric cars is four pence per mile.

For more information or advice on AFRs, contact our expert team today.