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If you drive for business, HMRC has a rigid set of rates for claiming fuel and other expenses. Here’s all you need to know

If you drive for business, it's vital to closely watch your mileage rates, because HMRC has set strict rates against which expenses are claimed for company cars. Here's what you need to know.

What are the mileage rates for company cars and vans?

An employee driving a company-owned vehicle on their own fuel is reimbursed by their employer using advisory fuel rates (AFRs). They apply to each mile driven on business but can also be used by employers to recoup the cost of private journeys driven using company fuel.

The HMRC-approved per-mile rates are reviewed and, if necessary, adjusted every quarter. So to ensure that nobody is left out of pocket, it's important that employees as well as employers keep up to date with them.

HMRC publishes nine AFRs, with different rates for petrol, diesel and LPG-fuelled vehicles, each based on their engine capacity. They're calculated using a combination of average fuel efficiency figures for vehicles registered to fleets and current forecourt prices across the UK. The resulting figure is rounded to the nearest whole penny.

Petrol cars and vans

Engine size Average Efficiency Cost per mile AFR
Up to 1400cc 49.5mpg 13.7p 14p
1401-2000cc  42.1mpg 16.2p 16p
Over 2000cc 26.7mpg 25.5p 26p

Diesel cars and vans

Up to 1600cc 56.7mpg 12.6p 13p
1601-2000cc 48.0mpg 14.9p 15p
Over 2000cc 36.3mpg 19.7p 20p

LPG cars and vans

Up to 1400cc 39.6mpg 11.3p 11p
1401-2000cc 33.7mpg 13.3p 13p
Over 2000cc 21.3mpg 21.0p 21p

How do mileage rates work for electric and hybrid cars?

Electricity is taxed differently from other fuels, and HMRC has a much simpler system for reimbursing EV drivers.

From 1 June 2024, the Advisory Electric Rate (AER) is 8p per mile for all electric cars, regardless of their size and efficiency. The rate is based on an average efficiency figure for all fleet-owned vehicles and the cost of home charging. Following a year of rising energy prices, it's now adjusted every quarter.

There are no mileage rates for hybrid cars, whether they’re the ‘self-charging’ or plug-in type. Instead, HMRC advises fleets to reimburse drivers using the AFR system, with reference to the vehicle's engine size and primary fuel type.

What if mileage rates don't cover real-world costs?

HMRC will allow fleets to adjust the mileage rates if they're leaving drivers out of pocket or actual travel costs are much lower – for example, if a plug-in hybrid is being charged regularly. However, they have to prove that the rates they are using are accurate, and any excess can be taxed as additional income or profit. 

Employers also don’t have to use AFRs if they can prove that employees reimburse them for the full cost of private journeys instead of calculating it based on mileage.

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Are there mileage rates I can claim for using my own car for business?

HMRC issues more generous mileage rates for drivers who use their own car or van, because these are supposed to cover the cost of wear and tear to the vehicle as well as the fuel used. Called Mileage Allowance Payments (MAPs), only a certain amount, called ‘approved amounts’, can be paid to employees each year without having to be reported to HMRC.

MAP rates haven't changed since 2012 and are set at 45p per mile for the first 10,000 miles and 25p beyond that. The rates aren't obligatory; an employer may set their own per-mile payment rate, either higher or lower. They may even pay nothing at all.

Employees should check their employment contract to establish their employer's policy. If the employee receives less than the advisory amount from their employer, they're entitled to tax relief, called Mileage Allowance Relief (MAR). 

To show what business mileage they've driven, the employee should provide their employer with a mileage log detailing the date and purpose of the trip, the distance travelled and departure and arrival addresses with postcodes. Only MAPs that exceed the advisory amount are taxed.

There’s an additional 5p per mile available for business journeys that include a fellow employee, also on a work journey, the point being to encourage green-minded carpooling.  

Note that MAPs don't cover road tolls, parking fees, congestion charges or fines for road offences.

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289 3 June 2024

If you look at what the cost per litre of fuel was in 2016 compared to today ( £1.02 vs £1.49), it shows what a joke the MAP rates are.

Thats before taking into account the increased servicing costs from abysmal road condidtions in the last 8 years (MAP is supposed to cover fuel/maintenance per mile).

Likewise the tax allowance for home working is worth around £130 p.a. and hasnt changed in donkeys years....the cost of energy having tripled or quadrupled in that time.

Fair and equitable....dont think so!