Welcome to the February 2007 ‘stop press’ edition of our Changes to Advisory Fuel Rates newsletter.

As always, if there is any aspect you would like clarifying or to discuss, please do give a member of the team a call.

Our new contact details are:
Adtax
3 Quayside Commerce Centre
Lower Quay
Fareham
Hampshire
PO16 0XR

Tel: 0845 659 0655
Fax: 0845 659 0656

Since the Inland Revenue announced the advisory fuel rates for company car drivers back in January 2002, the price of fuel has fluctuated considerably.

With the price of fuel being somewhat variable since 2002, although generally on the increase, the Revenue has announced a change to the Advisory Fuel Rates with effect 1^st February 2007.

From 1^st February, the new rates are to be:

Engine Size	Petrol	Diesel	LPG
<1400cc	9p	9p	6p
1400-2000cc	11p	9p	7p
>2000cc	16p	12p	10p

The previous rates from July 2006 were:

Engine Size	Petrol	Diesel	LPG
<1400cc	11p	10p	7p
1400-2000cc	13p	10p	8p
>2000cc	18p	14p	11p

As you may have noted, there has been a considerable drop in the mileage rates. Our current experience is that many employers, and employees, do not believe the Advisory Rates cover the cost of business fuel – there are, as always, exceptions to the rule!

Where an employer reimburses genuine and allowable business mileage at the above rates from 1 July 2006, HMRC agrees that no taxable profit arises and no liability to Class 1 or Class 1A occurs.

The rates are advisory, and it should not be taken as read that all employers should pay these rates – it is simply an agreement that payments up to these rates do not crystallise a tax or NIC liability.

In addition, these rates are not binding where an employer can demonstrate that the actual fuel cost per mile exceeds those above, e.g. for employees driving 4x4s, sports cars, towing large loads. Separate negotiations can take place to arrive at a more realistic reimbursement rate where required.

If an employer decides to reimburse genuine and allowable business travel above these rates, and cannot demonstrate that the costs simply cover the actual cost of fuel, this will not result in the fuel scale charge being levied. Instead, the excess above the rates will form taxable profits on the employee and earnings for Class 1 NIC purposes.

The rates mentioned above can also be used for employees who are required to reimburse the cost of private mileage. As always, these claims should be closely scrutinised to ensure that no element of private motoring is being reimbursed. In addition, employers should try to avoid using both the payment and reimbursement routes for different groups of employees, as this is likely to be scrutinised by HMR&C during any PAYE review.

If these rates are used for reimbursement of private fuel (rather than the payment of business fuel), the rates are effective for vehicles with engine sizes of 3 litres or lower.

These rates are to take effect from 1^st February, and will be reviewed by HMRC again if the fuel prices vary by 10%. The current prices used in the calculations are 86.3ppl for unleaded, 90.5ppl for diesel and 45.5ppl for LPG.

The advisory note from HMRC also confirms that ‘Customs’ will also accept these figures for VAT purposes. However, HMRC have added, “….though employers will need to retain receipts in line with current legislation”. If you would like to discuss any VAT implications, please call The VAT Consultancy on 01962 735350.

For copies of earlier newsletters please visit www.adtax.co.uk or drop us an e-mail and we’ll send you copies.

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This page was last updated on Friday, January 04, 2008.