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22 March 2023 - 2 min read

Advisory Fuel Rates

Advisory fuel rates, or AFR, are recommended rates set by HMRC for the purpose of reimbursing fuel costs in businesses that provide company cars. The rates are on a per-mile basis, taking into account current fuel costs. HMRC reviews the set advisory fuel rates four times a year, in order to reflect the fuel prices in the country. HMRC sets separate fuel advisory rates based on engine size for diesel, petrol, LPG and electric cars.

​​How HMRC advisory fuel rates work

Advisory fuel rates can only be used in the following two instances:

  • When employers have to reimburse employees for fuel costs for business-related driving using a company car, and
  • When employees have to reimburse employers for using a company vehicle for private purposes.

Read on as we explain both situations and the allowed deviations in the recommended rates.

Employers reimbursing employees for business-related driving fuel costs

If employees pay fuel out of pocket for company car business driving, the business is to reimburse the employees for their expenditure. As a company, if you pay less or equal to the advisory fuel rate per mile, the reimbursement for employees is non-taxable and there is no National Insurance to be paid.

If the company cars you provide, however, are not fuel efficient and you have to reimburse employees at a higher rate than the advisory fuel rate, you must be able to prove that the vehicles indeed have a higher fuel cost per mile. If you are unable to justify the higher fuel rates you pay out, employees will have to pay income tax and NI on the excess over the HMRC advisory fuel rate.

Employees repaying fuel costs when using company cars for private purposes

When employees use company cars with fuel paid for by the company for private driving, they must either compensate the company for the fuel, or have the private use of the company car stated as a benefit. Benefits are always taxed as a part of employees’ income and are included in National Insurance payouts.

If the use of a company car for private purposes is not to be considered a benefit, employees must record their private miles in a log as proof and compensate the business for them at the advisory fuel rates or higher, depending on the company car fuel consumption.

The advisory fuel rates don’t have to be used when the business can prove that employees have covered the full fuel cost for private miles at a lower rate.

Find out more about keeping a compliant mileage log according to HMRC rules. Employees can also use an automatic mileage tracker to save time and make sure they have a full mileage log.

How HMRC advisory fuel rates are calculated

HMRC calculated the advisory fuel rates for company cars based on the mean miles per gallon, according to vehicle manufacturers, while taking into account the annual sales to businesses. See the current HMRC advisory fuel rates, most recently updated in March 2023.

FAQ

HMRC’s advisory fuel rates are used to compensate employees who have paid out of pocket for company car fuel when driving for business purposes or to reimburse employers when employees have used a company car with company-provided fuel for private mileage.
HMRC advisory fuel rates are revised four times a year - on the 1st of March, June, September and December.
As the name suggests, the HMRC advisory fuel rates are advisory. However, make sure you can prove that the rates you use in your business, higher or lower than the advised ones, correspond to the company car fuel consumption.

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