When advising the Advisory Fuel Rates, it is actually necessary to consider two sets of rates: The Advisory Electricity Rate and The Advisory Fuel Rates.
The Advisory Electricity Rate (AER)
This was first detailed in the August 2018 Employer Bulletin with the announcement that it would be published alongside the Advisory Fuel Rates and be kept under review. There are some important points that are worth repeating:
- Electricity is still not regarded as a fuel for tax and National Insurance Contributions (NICs) purposes, e.g. car fuel benefit. Therefore, it is applicable for reimbursement of business mileage in a company car
- The AER started as 4p per mile for the quarter starting 01 September 2018
- The AER should really be considered a concession by HMRC. The Bulletin said that ‘HMRC will accept’ that 4p per mile in a fully electric company car is a rate that does not constitute any profit element for tax and Class 1 NICs’
- Employers can pay at a higher rate if they can justify that the electricity cost per mile is more than 4p. If they cannot, the excess over 4p is profit and subject to tax and Class 1 NICs
As this rate will be kept under review, I am continuing with the following table that will form a history of this rate over time:
|Advisory Electricity Rate||Date||Rate|
|Fully electric company cars||From 01/09/18||4p|
The above information is contained on the Gov.UK Website within the document ‘Advisory Fuel Rates’.
The Advisory Fuel Rates (AFRs)
HMRC’s Advisory Fuel Rates (AFR) can be used by employers in two situations, both applying where the employee has a company car:
- To reimburse employees for business travel, or
- To calculate the amount employees should repay where they are required to repay the cost of fuel used for private travel
The AFRs are reviewed quarterly at the start of March, June, September and December. When new rates are announced, employers can choose to implement the new rates immediately or use the old rate for up to one further month. The pence per mile rates effective 01 March 2019 are shown in the tables below. This also shows the movement of rates in the last 12 months and highlights in red the changes from the rates that applied from December 2018:
Petrol and LPG
|1400cc or less||1401 to 2000cc||Over 2000cc|
Petrol and petrol-hybrid
|1600cc or less||1601 to 2000cc||Over 2000cc|
HMRC documents the way that the AFRs rates are calculated.
They are based on ‘Applied Miles per Gallon’ for different engine sizes. This is a figure based on manufacturers’ miles per gallon information, reduced by 15% to take into account real driving conditions and lower fuel economy for older cars. The LPG miles per gallon information is assumed to be 20% lower than for petrol due to ‘lower volumetric energy density’.
Having identified the Applied Miles per Gallon figure, they are then compared to the latest petrol and diesel fuel prices from the Department for Business, Energy & Industrial Strategy (BEIS) and the LPG (UK Average) fuel price from the Automobile Association (AA). The fuel prices used are:
- Petrol – 119.00p per litre (541.20p per gallon)
- LPG – 59.40p per litre (270.00p per gallon)
- Diesel – 129.20p per litre (587.50p per gallon)
The above information is contained on the Gov.UK Website in four separate places:
- ‘Current rates’
- ‘When you can use AFRs’
- ‘How AFR rates are calculated’
- ‘Previous rates’