Tax warning issued to UK drivers as HMRC set to release new charges

Thousands of company car drivers across the UK are set to find out within weeks whether the cost of business travel is about to change again as HM Revenue and Customs prepares to publish its latest advisory fuel rates. The new rates are expected to be announced before they come into effect on September 1, with motorists who use company cars being urged to check the changes as they could affect how much they are reimbursed for business mileage or what they have to repay for private fuel.

HMRC updates its advisory fuel rates every three months to reflect changes in the cost of petrol, diesel, electric vehicle charging and liquefied petroleum gas (LPG). The rates apply only to employees using company cars and must not be used in any other circumstances. The advisory fuel rates are used when employers reimburse staff for business journeys in company cars or when employees repay the cost of fuel used for private journeys.

Current rates, which came into force on June 1 and remain in place until August 31, range from 14p per mile for petrol cars with engines up to 1,400cc to 26p per mile for petrol vehicles with engines over 2,000cc.

For diesel vehicles, the current rates are 15p per mile for engines up to 1,600cc, 17p per mile for engines between 1,601cc and 2,000cc, and 23p per mile for engines above 2,000cc.

Electric company cars currently have advisory rates of 7p per mile when charged at home and 15p per mile when using public chargers. LPG vehicles range from 11p to 21p per mile, depending on engine size.

HMRC calculates the rates using fuel price data from the Department for Energy Security and Net Zero, while LPG figures are based on average prices published by the Automobile Association.

Electric vehicle rates also take into account electricity prices, official vehicle efficiency data and business sales figures.

The latest update is being closely watched because the rates have risen sharply over recent years.

For example, the advisory rate for petrol company cars with engines over 2,000cc has increased from 15p per mile in 2022 to 26p per mile under the current rates.

Car manufacturer Seat explained how the system works. A spokesperson warned: “If you’re reimbursing employees for business travel in their company cars at a set pence per mile rate, then you need to be aware of the latest advisory fuel rates.

“Set quarterly by the Government, advisory fuel rates are designed to reflect the typical cost of fuel when driving a company car.

“How much tax company car drivers will pay on fuel costs depends on the mileage rate your business uses when processing expense claims.

“At advisory fuel rates, your employees won’t incur any tax liability. Below advisory fuel rates, they may be eligible for a tax rebate.

“Above advisory fuel rates, company car drivers may be liable for additional tax (unless they can explain why the cost is higher).

“Company car drivers can also reduce benefit-in-kind costs by paying back their private mileage.”

HMRC says there is no taxable profit or Class 1A National Insurance to pay where employers reimburse business mileage at no more than the advisory fuel rates.

Businesses can also use their own mileage rates if they better reflect their actual fuel costs, such as where vehicles are more fuel efficient or the cost of business travel is higher than the guideline figures.

Drivers who repay the full cost of fuel used for private journeys can also avoid a fuel benefit charge, provided all private mileage is correctly recorded, and the appropriate repayment rate is used.

The next set of advisory fuel rates will take effect on September 1, with further updates due on December 1, March 1 and June 1 next year.