HMRC’s failure to increase the advisory fuel rates for employees using their own cars for business journeys has received criticism, as it puts some employees at risk of losing out financially. Laura Parr, Employment Tax Director, outlines the problems with the rates and provides a solution for any employees and employers set to be affected.

What is the current HMRC approved business mileage rate (AMAP) for business travel in private cars?

HMRC announced that its business mileage rate (AMAP) for business travel in private cars would remain the same for 2022:

  • 45p for the first 10,000 miles
  • 25p for each mile over the 10,000 miles

AMAP rates are set to cover the cost of fuel for the business journey, and a contribution towards the associated running costs and depreciation of the car. If the mileage rate reimbursed to employees exceed the AMAP rates, the excess is liable to PAYE tax and NIC.

What are the current HMRC advisory fuel rates for company car drivers?

HMRC’s latest advisory fuel rates apply from 1st September 2022. The advisory fuel rates allow employers to reimburse drivers of company cars for the fuel they use on business journeys.

Engine size Petrol Diesel LPG Fully Electric
1,400cc or less 15p   9p 5p
1,600cc or less   14p   5p
1,401cc-2,000cc 18p   11p 5p
1,601cc-2,000cc   17p   5p
Over 2,000cc 27p 22p 17p 5p

These advisory rates effectively recognise the fuel costs of business mileage.

What is the potential issue?

As the AMAP rate for business travel in privately owned cars decreases from 45p to 25p after 10,000 business miles have been travelled in the tax year, employees with cars that run on petrol and have an engine size over 2,000cc face a financial loss of 2p per mile.

The recognised fuel cost, indicated in the advisory fuel rate for company cars, is 27p but the AMAP rate for over 10,000 business miles is 15p. HMRC have refused to revise the AMAP rates to address this financial loss.

What can employers do to resolve this issue?

As an employer, you cannot reimburse an amount over the AMAP rates without a PAYE tax/NIC liability arising. However, you should make sure that your employees are aware that they can claim tax relief on the difference caused by the rate discrepancies. They can do this by detailing the mileage undertaken as an additional expense on their self-assessment form. HMRC may request evidence of mileage incurred before authorising the tax relief, but as detailed and accurate business mileage records will already be held for them to be reimbursed the AMAP via their expenses that should not be an issue.

If you would like further advice and guidance on this or any other expenses issue, contact us today to discuss your needs with one of our Employment Tax team.