HMRC reviews fuel rates every quarter and on December 1st they announced their new guidelines for fleet vehicles. Businesses must be aware of the recent changes so that they can understand how much their drivers should be paying for fuel which will allow them to accurately reimburse employees for business travel.
In this guide, we’ll explore how the advisory fuel rates are calculated and consider how the latest changes will impact businesses.
What are advisory fuel rates?
Advisory fuel rates (AFRs) are set by the government and are designed to help businesses calculate their fuel and tax costs. These rates only apply in two situations; when a company must repay an employee for business travel in a fleet vehicle, or when an employee is required to repay the business for personal travel in a fleet vehicle.
How are advisory fuel rates calculated and what’s changed in December 2022?
It wouldn’t be feasible for HMRC to calculate the precise rate of fuel consumption for every company car used in the UK as this would be extremely time-consuming and there would be too many variables that would need to be considered. Instead, HMRC has devised a system for calculating AFRs that takes into account several factors including:
- Engine size.
- Miles per gallon - using an average based on manufacturers’ guidelines.
- Latest petrol and diesel prices - based on recommendations from the Department for Business, Energy, and Industrial Strategy.
The advisory fuel rates for hybrid vehicles are calculated as if they were petrol or diesel, so they also follow this methodology.
Diesel AFR methodology
Diesel AFRs have remained the same as they were in September, despite the average cost of diesel increasing.
| Engine size (cc) | Mean MPG | Fuel price (per litre) | Fuel price (per gallon) | Rate per mile | Advisory fuel rate |
| Up to 1600 | 60.7 | 188.9 pence | 858.5 pence | 14.2 pence | 14 pence |
| 1601 to 2000 | 49.8 | 188.9 pence | 858.5 pence | 17.2 pence | 17 pence |
| Over 2000 | 38.8 | 188.9 pence | 858.5 pence | 22.1 pence | 22 pence |
Petrol AFR methodology
In contrast, the rates for petrol fleet vehicles have all been cut, albeit only by 1ppm.
| Engine size (cc) | Mean MPG | Fuel price (per litre) | Fuel price (per gallon) | Rate per mile | Advisory fuel rate |
| Up to 1400 | 51.9 | 164.4 pence | 747.4 pence | 14.4 pence | 14 pence |
| 1401 to 2000 | 44.1 | 164.4 pence | 747.4 pence | 17.0 pence | 17 pence |
| Over 2000 | 28.8 | 164.4 pence | 747.4 pence | 25.9 pence | 26 pence |
The advisory electric rate for all-electric vehicles is calculated slightly differently as HMRC uses electrical price data from:
- The Department for Business, Energy, and Industrial Strategy.
- The Office for National Statistics.
- Electrical consumption rates obtained from the Department for Transport.
From 1 December 2022, the advisory electricity rate, which is only applied to fully electric vehicles, will rise from 5 pence to 8 pence per mile. In line with advisory fuel rates, this electric rate will also now be reviewed quarterly to ensure that businesses have up-to-date information.
What do the changes to the advisory fuel rates mean for your business?
The most significant change that will impact businesses is the increased advisory electricity rate. The fleet industry has been campaigning for a long time for this rate to be reviewed on a quarterly basis, so many businesses will welcome this important change. As electricity prices have risen considerably over the last year, businesses have been struggling to get a fair reimbursement due to the advisory electricity rate not reflecting real-world costs.
However, the new rate of 8ppm is considered too low for drivers who do not have access to home charging as the cost of using public chargers has increased significantly, and it can now be more expensive than filling up a petrol vehicle. According to a recent poll, almost three-quarters of respondents believe the changes should be at least 10ppm. As a result of the low rate, some businesses, such as the National Grid, have opted out to offer their drivers a higher reimbursement rate. Some employees are therefore receiving up to 12ppm rather than the 8ppm that HMRC proposes. Although this means that fewer drivers are out of pocket, businesses are effectively no longer being subsidised, so it’s likely that this will not be a long-term solution for those that are already struggling financially.
The changes to the advisory electricity rate will of course only impact businesses that have electric vehicles in their fleet, however, the decision not to increase the advisory fuel rates for diesel vehicles will affect most businesses. Currently, there is a 25p gap between petrol and diesel prices which is adding financial pressure onto businesses who already struggling with the rising cost of living. By not increasing the advisory fuel rate in-line with the higher diesel prices, many drivers will be short-changed when requesting reimbursement for their business travel, causing further issues for businesses.
How can our fuel cards help?
At Right Fuel Card, we’re committed to helping businesses manage their fuel expenditure. Our wide range of fuel cards can help save you time and money, particularly if your drivers refuel on motorways or on the main ‘A’ road network. Our online account management system can also help you to monitor the behaviour of your drivers so that you can ensure they’re driving as efficiently as possible which will help to cut fuel costs.
Contact our team today at 0113 202 5110 to find out which fuel card is best for your business or use our comparison tool to get an instant recommendation.
 | David JamesDavid has worked in the fuel card industry since 2008. His financial insights have been featured in various publications, such as The Sun, the Daily Express and The Yorkshire Times where he provides money-saving tips for motorists. David is passionate about charity work and regularly raises money through running events, including the London Marathon and the Leeds Abbey Dash. |
