Using the advisory fuel rates - Go Figure Financial | Bookkeeping Services Manchester

olivia26264
21 hours ago
3 min read

HMRC publish fuel-only rates which are only of relevance where an employee has a company car. The rates, which are updated quarterly, can only be used in two situations:

· to make tax-free reimbursements to employees who meet the cost of business travel in their company car; and

· to repay the cost of fuel provided or paid for by their employer and used for private journeys in a company car.

The rate depends on the fuel type and, where relevant, the engine size. From 1 September 2025 onwards, the rate for electric cars also depends on whether the car was charged at the employee’s home or using a public charger, with a higher rate applying to miles on a public charge.

The rates, which are updated quarterly on 1 March, 1 June, 1 September and 1 December, are available on the Gov.uk website at www.gov.uk/guidance/advisory-fuel-rates.

Reimbursing the cost of business journeys

Where an employee meets the cost of fuel for a business journey in a company car, they will usually be able to reclaim this from their employer. The reimbursement is generally made in the form of a mileage allowance.

Where the employer reimburses the employee using the advisory fuel rates, the reimbursement can be made free of tax and National Insurance. HMRC will allow higher amounts to be paid tax-free where the actual cost exceeds the advisory rate, and the employer can substantiate this. In the absence of such evidence, if the amount paid exceeds the amount payable at the advisory rate, the excess is earnings for both tax and National Insurance.

From 1 September 2025 onwards, where the car is an electric car, the tax-free amount depends on whether the car was charged at home or using a public charger. Where a business journey involves both types of charge, an apportionment is necessary as shown in the example below.

Example

Laura has an electric company car. She visits a customer on 27 November 2025 undertaking a business journey of 154 miles. She charged her car at home the previous Sunday. En route to the customer, she stops at a service station 65 miles from home and charges her car. She completes the journey to the customer and home without needing a further charge.

Her employer uses the advisory fuel rates to reimburse Laura, paying her 8 pence per mile for the 65 miles on the home charger and 14 pence per mile for the remaining 89 miles on the public charger, a total reimbursement of £17.66.

Repaying fuel for private mileage

A fuel benefit charge applies if the employer meets the cost of fuel for private journeys in a company car unless the car in question is an electric car. The charge can be significant. However, the tax charge can be avoided if the employee makes good the cost of all fuel used for private journeys. The repayment can be made using the advisory fuel rates. To be effective at cancelling the charge, the employee must ‘make good’ before 1 June following the end of the tax year if car and fuel benefits are payrolled and by 6 July following the end of the tax year if the employer would report the benefit via the P11D process. It should be noted that the charge is only eradicated if the employee makes good the cost of all fuel for private journeys; there is no reduction in the charge for a partial reimbursement.