HMRC has published new ‘advisory fuel rates’ (AFR) for company cars, which apply to journeys from 1 September 2015.
Where an employer reimburses an employee for the cost of fuel used for business travel in a company car, if the payment is too high there is an element of profit to the employee, which is taxable as employment income. If the AFR (or a lower rate) is used, HMRC will accept that no tax charge arises, without requiring a detailed justification of the figures. An employer may use a different rate in particular circumstances (e.g. where the terrain or the driving pattern results in a higher than usual fuel consumption) but HMRC may require the calculation to be justified.
Alternatively, an employer may pay for all fuel but require the employee to reimburse the cost of private travel. Again, if the amount reimbursed were too low there would be an element of taxable profit to the employee, but if the AFR (or a higher rate) is used HMRC will accept that no tax charge arises.
Car fuel benefit charge
This is a fixed annual charge, varying according to the carbon emissions of the car, that applies if any fuel at all is provided for private use in a company car and either the employee is not required to make good the full cost of the private use or does not actually do so. If the AFR is used by the employee to reimburse the company for private use, HMRC will accept that this constitutes full reimbursement.
To give employers time to change their systems, for journeys up to 30 September 2015 they may use either the old or the new rates. If they want to make (or require) supplementary payments to bring the original amount up to the new figures they can, but they are under no obligation to do so.
The rates are reviewed four times a year, on 1 March, 1 June, 1 September and 1 December. For previous rates click here
Business Tax team
Private Client Tax team