Company cars, which differ from pool vehicles, can greatly benefit both employees and businesses. They provide employees with greater flexibility, can boost the reputation of the company and are an appealing perk when recruiting new employees. However, company cars come with their own set of taxes and regulations — one of the most important being the company car HMRC tax. Also known as advisory fuel rates, this special company car tax affects both the employee and the company.
In this article, we’ll discuss advisory fuel rates (AFRs) in detail, including what they are and why they matter.
FAQ’s About Advisory Fuel Rates
Confused about AFRs? The following section breaks down the most commonly asked questions about company car HMRC fuel rates and highlights the key details you need to know.
What Are Advisory Fuel Rates?
AFRs are the rates set by the government to help businesses reimburse or be reimbursed for the fuel costs of company cars. These rates only apply when a business must repay an employee for business travel done in a company car or when an employee is required to repay the company for personal travel done in a company car.
AFRs are calculated on a quarterly basis, so it’s important that you check the new rates once every three months.
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Why Use Advisory Fuel Rates?
Using the company car HMRC tax rates is the most efficient and fair way for companies to recognise and reimburse employees’ fuel costs and for employees to reimburse companies for personal travel done in company cars. If the AFRs weren’t in place, individual rates would have to be set for every make and model of company cars. Thus, AFRs make it easier on both companies and the tax office.
When Do Advisory Fuel Rates Apply?
There are two main scenarios when the advisory fuel rates apply:
- When companies need to reimburse employees for business travel completed in their company cars.
- When employees need to repay the cost of fuel companies used for private travel completed in their company cars.
Note that AFRs apply to company cars only, not to pool cars.
What Are HMRC Fuel Rates Used for?
Using government mandated AFRs makes it easier for companies to reimburse employees for business travel, and vice versa. The HMRC has standardised these reimbursement fees because petrol prices and fuel efficiency can vary — calculating the individual reimbursement fee for each and every company car would be a waste of time for everyone involved.
Additionally, because business expenses are not subject to tax or Class 1A National Insurance fees, companies can reduce their tax and insurance fees when they reimburse company car fuel expenses.
What to Know About Company Car Tax
There’s a lot of information to know about company car HMRC tax, but the key points to remember include:
- Categorizing vehicles: The AFRs vary depending on the type of company car. Cars are classified as being diesel, petrol, LPG or electric. Hybrid cars must be classified as either diesel or petrol.
- When new rates are calculated: AFRs are calculated on a quarterly basis. New rates are released 1 March, 1 June, 1 September and 1 December.
- Setting company rates: According to the UK government website, “if your cars are more fuel efficient, or if the cost of business travel is higher than the guideline rates, you can use your own rates to reflect your situation.”
What Are the Most Recent Advisory Fuel Rates?
For the most recent AFRs, you should reference the Advisory Fuel Rates page on the government website. These rates are updated on a quarterly basis, so check back on this page throughout the year.
Final Notes About Advisory Fuel Rates
Company cars can greatly benefit both businesses and employees, but it’s important to note that they come with their own set of taxes and regulations. Most notably, the HMRC has a special set of tax rates, called advisory tax rates, that help businesses with reimbursing and being reimbursed for the fuel costs of company cars.
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