In recent times, the Advisory Fuel Rates have been reviewed every six months.  Employers have been able to apply the new rates from 1 June or 1 December but they had to be in use within one month, i.e. from 1 July or 1 January.  The last rate changes, for example, applied from 1 July 2009 but could be applied up to a month in advance of that date, from 1 June 2009.

Following discussions, the month’s notice has been withdrawn.  The new rates shown below are effective from 1 December 2009.  If, as a result of the lack of notice, employers are unable to change their systems in time and make or collect payments using the July 2009 rates (bracketed), HMRC’s guidance is that they “may use their judgement on whether to make or require a second payment in respect of the same period in order to apply the new rate from its effective date”.

HMRC documents the way in which the rates are calculated.  They are based on average fuel consumption for the different engine sizes, reduced by 10% to make the figures more realistic.  The fuel prices used are

• petrol – 108.7p per litre (494.3p per gallon)
• diesel – 109.9p per litre (499.5p per gallon)
• LPG – 53.30 p per litre (242.3p per gallon).

The advisory mileage rates are provided by HMRC for employers to apply where they:

• reimburse employees for business travel in their company cars, or
• require employees to repay the cost of fuel used for private travel.

The rates are intended to reflect average fuel costs and, as a result, if an employer uses the rates for the appropriate combination of fuel and engine size, HMRC accepts that,

• where employees are reimbursed for fuel used for business travel, no liabilities for tax or NICs arise.  Employers may use lower rates if the cars involved are fuel efficient or higher rates if they are less efficient.  However, in the latter situation, the employer would have to demonstrate the need for higher rates.  If higher rates cannot be justified, the excess is earnings for tax and NICs.  Employees can obtain tax relief if they incur expenses that are not reimbursed.
• where employees repay the cost of fuel for private use, there is no fuel benefit charge or Class 1A liability.  A benefit charge arises if lower rates are reimbursed, unless the employer can demonstrate that lower rates fully cover the cost of fuel for private mileage in the vehicles concerned, in which situation a dispensation would be sensible.