Company cars remain a central part of many organisations’ benefits packages, but the rules governing fuel reimbursements can be complex. To provide clarity, HMRC publishes advisory fuel rates (AFRs), which employers may use to reimburse employees for business motoring or to calculate the amount an employee must repay for private fuel. These rates offer a practical, standardised method of calculating fuel costs without creating a taxable benefit.
This article explains when the advisory fuel rates apply, how they are calculated, and the situations in which employers and employees should use them. It also highlights recent changes affecting electric company cars.
Understanding Advisory Fuel Rates
Advisory fuel rates are HMRC-approved fuel-only mileage rates for company cars. They are updated quarterly, on:
- 1 March
- 1 June
- 1 September
- 1 December
The rates vary according to:
- fuel type (petrol, diesel, LPG or electricity), and
- engine size where relevant.
Their purpose is to provide a fair estimate of fuel costs without requiring employees or employers to calculate the actual cost per mile.
Two situations permit the use of AFRs:
- When an employer reimburses an employee for business mileage undertaken in a company car.
- When an employee repays the employer for fuel supplied for private journeys in a company car.
Outside these situations, the AFRs cannot be used.
Tax-Free Reimbursements for Business Journeys
When an employee pays for fuel themselves while using a company car for business travel, they may reclaim this cost from their employer. The AFRs provide the benchmark for tax-free reimbursement.
How the Rules Work
Reimbursements made at or below the advisory rate are tax-free and do not attract National Insurance. Reimbursements above the rate may still be paid tax-free if the employee can show that the actual cost of fuel used for the business journey was higher than the advisory rate. Without this evidence, payments above the rate become taxable earnings.
This arrangement offers employers a simple way to reimburse employees accurately and consistently, while removing the need to calculate exact fuel consumption.
Special Rules for Electric Company Cars
Electric vehicle adoption has increased rapidly. Until 2025, electric cars used a single electricity-based AFR rate. However, from 1 September 2025, HMRC introduced two separate rates for electric company cars:
- a lower rate for vehicles charged at home, and
- a higher rate for charging at public charge points.
This change reflects the significantly higher cost of public charging compared with domestic tariffs.
Journeys Involving More Than One Charging Method
If a journey involves both types of charge, the mileage must be apportioned. The reimbursement should reflect:
- the miles driven using electricity obtained from home charging, and
- the miles driven after using a public charger.
Example
Laura has an electric company car. On 27 November 2025, she travels 154 miles on a business trip. She charged the car at home shortly before the journey, then topped up at a public charging station 65 miles into the trip. She then completes the remaining distance without further charging.
Her employer reimburses her:
- 65 miles at the home-charging AFR rate (8p per mile), and
- 89 miles at the public-charging AFR rate (14p per mile).
Her total reimbursement is £17.66.
This approach ensures fair reimbursement while staying fully within HMRC rules.
Repaying Private Fuel to Avoid a Fuel Benefit Charge
If an employer pays for or provides fuel used for private journeys in a company car, a fuel benefit charge normally arises. This charge can be substantial, particularly for employees with higher-value or less fuel-efficient company cars. The charge does not apply to fully electric cars.
To avoid the fuel benefit charge, an employee may repay the full cost of all private fuel to the employer. AFRs can be used to calculate the correct repayment amount.
Important Points to Note
- The employee must repay the entire cost of private fuel; partial repayment does not reduce the charge.
- The repayment must be made by a deadline:
- 1 June following the end of the tax year if benefits are payrolled; or
- 6 July following the end of the tax year if the benefit is reported on a P11D.
- The AFRs offer a practical way of estimating private fuel consumption but are optional. If actual fuel costs are known and substantiated, these may be used instead.
This mechanism allows employees to continue using company-fuelled vehicles without facing a tax liability, provided they settle the private element in full.
When Employers Should Avoid Using Advisory Fuel Rates
Advisory fuel rates are designed for fuel-only calculations, but they are not appropriate for:
- reimbursing business mileage in privately owned vehicles (the approved mileage allowance payments apply instead), or
- evaluating the total cost of running a company car.
Using the wrong rate in these contexts may result in tax or NIC being due, and HMRC may treat the reimbursement as earnings.
Why the Rates Are Reviewed Quarterly
Fuel prices can change quickly. Quarterly adjustments ensure that AFRs remain aligned with average UK pump prices. Employers should always check the correct rate for the date of travel, not the date of reimbursement.
For electric vehicles, electricity rates vary widely depending on whether a driver uses a home charger, workplace charger or public charging point. The 2025 update to separate home and public charging rates reflects this growing difference in cost.
How Employers Can Apply the Rates Efficiently
To ensure compliance and accuracy, employers should:
- keep records of business mileage claims
- ensure staff understand which journeys qualify
- maintain evidence when reimbursing above AFRs
- update internal systems when rates change each quarter
- identify whether any journeys involve mixed charging for electric cars
Many employers automate mileage submissions through digital systems, improving accuracy and reducing manual work.
Common Errors to Avoid
1. Using AFRs for private vehicles
AFRs apply only to company cars, not to privately owned cars used for business.
2. Paying above the AFR without evidence
Any excess becomes taxable unless the employee can show higher actual fuel costs.
3. Using outdated AFRs
Quarterly updates matter. Using an incorrect rate can lead to under- or over-payments.
4. Failing to apportion electric vehicle journeys
Mixed home and public charging journeys must be split correctly from September 2025 onwards.
5. Misunderstanding the rules around fuel benefit chargesEmployees must repay all private fuel to avoid the charge. Partial repayment does not reduce the liability.
Why the Advisory Rates Matter
For employers, these rates offer a straightforward, HMRC-approved way to manage business fuel costs. They reduce administrative workload and prevent uncertainty. For employees, they remove the risk of unexpected tax charges and ensure fair reimbursement for business journeys.
With the increasing use of electric company cars, the updated rules help maintain fairness across different charging methods while acknowledging the real-world differences in cost.
Message Yorkshire Accountancy for tailored advice.
This article is for general information only; seek tailored advice before acting.
