Millions of company car drivers across the UK could soon see changes to the rates used for business mileage, with HMRC expected to publish updated Advisory Fuel Rates from September. The quarterly rates are used by employers to reimburse staff using company cars for business journeys, while also helping determine how much employees should repay for fuel used on private trips.
With fresh rates expected next month, a money expert is urging drivers to make sure they're using the latest figures when submitting mileage claims. Joe Lytwyn, a personal finance expert at thimbl.com, explained that the rates played an important role in ensuring employees are reimbursed fairly while helping businesses remain compliant with HMRC guidance.
Joe said: "HMRC's Advisory Fuel Rates are designed to reflect the average fuel cost of running a company car for business journeys. They're primarily used by employers when reimbursing staff for business mileage or when employees repay fuel used for private journeys in a company car. They're reviewed every three months because fuel prices don't stand still, so it's important that businesses keep up with the latest figures."
However, Joe said many drivers misunderstood who the rates actually applied to, with many incorrectly believing they cover everyone who uses a vehicle for work.
He said: "One of the biggest misconceptions is that the rates apply to everyone who drives for work. They don't. These rates are specifically intended for company cars, whereas employees using their own vehicle are covered by different HMRC rules. Another common misunderstanding is that employers can simply choose any mileage rate they like without there being any tax implications."
Using the wrong rates could also have unexpected tax consequences for both employers and employees.
Joe added: "Potentially, yes. If an employer reimburses above HMRC's Advisory Fuel Rate without being able to justify the higher cost, the excess could become taxable. Equally, if employees are reimbursed below the advisory rate, they may be able to claim tax relief on the difference in some circumstances. It's always worth checking how your employer calculates mileage payments if you're unsure."
Poor administration is another issue that regularly catches employees out when making claims.
Joe said: "Poor record-keeping is probably the most common issue. People often forget to log journeys properly, or they mix business and personal mileage together. Others assume every trip qualifies as business travel when that isn't always the case. Having accurate mileage records makes life much easier if there are ever any questions about a claim."
Joe also highlighted that the amount employees receive can affect how their mileage payments are treated for tax purposes.
He said: "The amount you're reimbursed can have different tax consequences depending on whether it's above or below HMRC's published rates. Employees shouldn't assume that receiving more is automatically better, because it may carry tax implications unless there's evidence that higher costs were genuinely incurred. If you're paid less, there may be situations where tax relief is available, so it's worth understanding your position."
Ahead of the September update, Joe recommended drivers take a few minutes to review both their mileage records and their employer's reimbursement policy.
He said: "The simplest step is to check you're using the correct mileage records and that your employer is working from the latest HMRC rates. Keep a record of where you've travelled, why the journey was for business and the mileage covered. Spending a few minutes checking everything before submitting a claim can help avoid problems later on."
HMRC normally reviews the Advisory Fuel Rates every three months to reflect changes in fuel prices, meaning businesses and employees should ensure they are working from the latest published figures.
Joe said: "The rates are normally reviewed every quarter to reflect changes in fuel prices. While adjustments aren't always dramatic, using outdated rates could mean employees are reimbursed incorrectly or employers apply the wrong figures. Keeping up to date helps ensure claims remain accurate and tax treatment stays in line with HMRC's guidance."