Increases in most HM Revenue and Customs' Advisory Fuel Rates (AFRs) for company car drivers have been welcomed by ACFO, the UK's premier organisation for fleet operators.

The scheduled HMRC announcement was expected, but in the light of extraordinary and ongoing fuel price rises this year, the new rates come into effect from June 1 and not July 1 as previously expected.

Advisory Fuel Rates 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. They provide a range of rates based on engine size and fuel type, and when used, are deemed to be tax-free.

The new rates, which were officially announced by HMRC today (Friday, May 30) are based on fuel prices as at May 26 according to monitored data from the Department for Business, Enterprise and Regulatory Reform and the AA's website. The new schedule of rates replaces those introduced on January 1, 2008.

Because of the significant increase in road fuel forecourt prices, the new rates have increased by up to 3p per mile (see table below) with only the reimbursement rate for drivers at the wheel of liquefied petroleum gas vehicles up to 1.4 litre not seeing any increase.

ACFO WELCOMES INCREASED ADVISORY FUEL RATES TO REIMBURSE COMPANY CAR DRIVERS

In announcing the new rates, HMRC acknowledged that there was widespread concern in the fleet industry about reimbursement levels in the light of this year's fuel price rises. As a result, while the rates would not normally come into effect until July 1, the taxman has said that due to the ‘unusual circumstances' employers can introduce the new rates in June with no tax liability implications for employers or employees.

ACFO director Stewart Whyte said: "We welcome these changes in Advisory Fuel Rates. We also appreciate that HMRC has acknowledged the extreme financial pressure on many company car drivers who believe that in recent months they have effectively been subsidising their companies' business mileage.

"Assuming that employers are able to apply the new rates during June, one month earlier than expected, and are willing to do so, the HMRC's concession will go some considerable way towards alleviating the financial hardship that drivers have been feeling. There is still some encouragement in these new rates for employees to drive as economically as possible, but at least the element of subsidising employers has gone."

The change follows HMRC's decision at the end of last year that AFRs would be updated twice a year - on January 1 and July 1 - with one month's notice of change and in the event of a variation in fuel prices of greater than 5% from the prices used at the time of the previous review.

Previously, rates were reviewed when fuel prices fluctuated 10% from the prices used at the time of calculation leaving many company car drivers out of pocket.

Mr Whyte said: "HMRC engaged extremely closely with ACFO when introducing the new system. ACFO continues to hold regular and constructive talks with HMRC on all aspects of fuel reimbursement.

"In the light of the recent and unforeseen dramatic increases in fuel prices, we will continue to discuss with HMRC further refinements to the AFR system to ensure it is robust, fair to all sides and easy to implement."

ACFO WELCOMES INCREASED ADVISORY FUEL RATES TO REIMBURSE COMPANY CAR DRIVERS

New Advisory Fuel Rates

Fuel Type

Engine Size (cc)

MPG1

Applied MPG2,3

Fuel price (per litre)4

Fuel price (per gallon)

Pence per mile

AFR (previous rates in brackets)

Petrol

up to 1400

48.9

44.0

114.8

521.8

11.9

12 (11)

Petrol

1400-2000

39.5

35.6

114.8

521.8

14.7

15 (13)

Petrol

over 2000

27.8

25.0

114.8

521.8

20.9

21 (19)

Diesel

up to 2000

50.7

45.7

127.2

578.3

12.7

13 (11)

Diesel

Over 2000

38.2

34.4

127.2

578.3

16.8

17 (14)

LPG

up to 1400

39.1

35.2

57.1

259.6

7.4

7 (7)

LPG

1400-2000

31.6

28.5

57.1

259.6

9.1

9 (8)

LPG

over 2000

22.2

20.0

57.1

259.6

13.0

13 (11)

1 Mean miles per gallon, weighted by annual sales to businesses (Fleet Audits, 2006).
2 Adjusted to take account of real driving conditions and lower fuel economy for older cars.
3 For LPG, assume mileage is 20% lower due to lower volumetric energy density.
4 Department for Business, Enterprise & Regulatory Reform 's latest petrol and diesel prices (26th May 2008), and latest available UK average LPG update (May 2008) from AA website. Table reproduced from HMRC – supplied data.