Fleets and company car drivers will benefit from fuel rate changes

New HM Revenue & Customs rules on when and how the Advisory Fuel Rates for company car drivers are reviewed and published to ensure a fairer, more responsive system have been welcomed by ACFO.

Publication of the measures follows detailed discussions between senior representatives of ACFO, the UK’s premier organisation for fleet operators, and HMRC.

The Advisory Fuel Rates apply where employers reimburse employees for business travel in their company cars, or require employees to repay the cost of fuel used for private travel. They provide a range of rates based on engine size and fuel type, and when used, are deemed to be tax-free.

The changes come in response to claims that the old system frequently left drivers out of pocket - effectively subsidising their employers for each business mile undertaken. The new system offers a more responsive arrangement under fluctuating fuel prices and allows employers to plan and budget more easily.

Changes to the way in which Advisory Fuel Rates, which are exempt from benefit-in-kind tax and National Insurance, are published will see:

One month’s notice given of any change to the mileage rates

Bi-annual reviews of rates with rates taking effect on January 1 and July 1 each year. Therefore, any rate changes will be posted on the HMRC website in early December or early June to allow employers implementation time

Rates will be reviewed in the event of a variation in fuel prices of greater than 5% from the prices used at the time of the previous review

Previously advisory fuel rates have only been reviewed when fuel prices have fluctuated 10% from the prices used at the time of calculation leaving, says ACFO, drivers frequently out of pocket.

Current advisory fuel rates, which took effect on August 1, 2007, were based on prices which at the time were 96.6p per litre (petrol) and 97.2p per litre (diesel). The recent huge increases in fuel prices leaves today’s average prices, according to the AA, at 101.7p per litre (petrol) and 105.6p per litre (diesel) - both above the 5% threshold for a review but below the previous 10% threshold.

ACFO director Stewart Whyte said: “HMRC engaged extremely closely with ACFO. All members were consulted via a questionnaire, on the changes they would like to the Advisory Fuel Rate system.

“We believe ACFO has played a very significant role in helping HMRC gauge fleet decision-maker views on the changes, as the new rules are closely aligned to our proposals.”

He added: “The increasingly volatility of fuel prices means that it is difficult for drivers, employers and company car drivers to find common ground over fair rates. Now that the HMRC tax-free rates will be reviewed more frequently, company car drivers will not be left financially out of pocket. Equally, the formal diarised review of rates is a vast improvement on the previous ad hoc arrangement. These moves will enable companies to diarise and plan. It will take pressure of corporate HR and expenses departments which often find themselves under fire from drivers when fuel prices rise and reimbursement rates don’t immediately fall into line.”

The first release of new rates under the new timings is expected to be published by HMRC by the start of December 2007. These will be calculated using the existing methodology, but based on current prices and average fuel performance for each vehicle band.