Understanding Mileage Rates for Company Cars: What You Need to Know
If you drive for business, it’s essential to familiarize yourself with the mileage rates set by HMRC (Her Majesty’s Revenue and Customs). These rates determine how expenses for company cars are claimed and reimbursed. In this article, we will explore the different mileage rates for petrol, diesel, and LPG-fueled vehicles, as well as how mileage rates work for electric and hybrid cars.
Mileage Rates for Petrol, Diesel, and LPG Vehicles
HMRC publishes advisory fuel rates (AFRs) that employers use to reimburse employees driving company-owned vehicles on their own fuel. These rates apply to business miles driven and can also be used to recoup the cost of private journeys using company fuel.
The AFRs are reviewed and adjusted every quarter to ensure accuracy. There are different rates for petrol, diesel, and LPG vehicles based on their engine capacity. The rates are calculated using average fuel efficiency figures for fleet-registered vehicles and current forecourt prices across the UK.
For petrol cars and vans, the rates are as follows:
– Up to 1400cc: 13.7p per mile
– 1401-2000cc: 16.2p per mile
– Over 2000cc: 25.5p per mile
For diesel cars and vans, the rates are as follows:
– Up to 1600cc: 12.6p per mile
– 1601-2000cc: 14.9p per mile
– Over 2000cc: 19.7p per mile
For LPG cars and vans, the rates are as follows:
– Up to 1400cc: 11.3p per mile
– 1401-2000cc: 13.3p per mile
– Over 2000cc: 21.0p per mile
Mileage Rates for Electric and Hybrid Cars
Electric cars have a simplified reimbursement system due to the different taxation of electricity. From June 1, 2024, the Advisory Electric Rate (AER) is set at a flat rate of 8p per mile for all electric cars, regardless of their size and efficiency. This rate is based on an average efficiency figure for fleet-owned vehicles and the cost of home charging. It is adjusted every quarter to reflect changing energy prices.
As for hybrid cars, whether they are self-charging or plug-in, there are no specific mileage rates. HMRC advises fleets to use the AFR system based on engine size and primary fuel type for reimbursement.
Adjusting Mileage Rates for Real-World Costs
If the mileage rates set by HMRC do not adequately cover the actual costs incurred by drivers or if the actual costs are substantially lower, fleets are allowed to adjust the rates. However, they must provide evidence to prove that the rates they use are accurate. Any excess can be subject to taxation as additional income or profit.
Using Your Own Car for Business
If you use your own car or van for business purposes, HMRC provides Mileage Allowance Payments (MAPs) to cover the cost of wear and tear on the vehicle as well as fuel expenses. The current MAP rates have remained unchanged since 2012 and are set at 45p per mile for the first 10,000 miles and 25p per mile beyond that. Employers have the option to set their own per-mile payment rate, which can be higher or lower than the advisory rate, or they may choose not to provide any reimbursement at all.
Employees should refer to their employment contract to understand their employer’s policy on mileage allowances. If an employee receives less than the advisory amount from their employer, they are entitled to tax relief called Mileage Allowance Relief (MAR). To claim this relief, employees should provide their employer with a detailed mileage log that includes the date and purpose of each trip, distance traveled, and departure and arrival addresses with postcodes. Only MAPs that exceed the advisory amount are subject to taxation.
Additionally, there is an extra 5p per mile available for business journeys that involve carpooling with a fellow employee on a work journey, encouraging environmentally friendly practices.
It’s important to note that MAPs do not cover road tolls, parking fees, congestion charges, or fines for road offenses.
In conclusion, understanding mileage rates is crucial for both employers and employees who drive for business purposes. By staying informed about the rates set by HMRC and following the guidelines for reimbursement, individuals can ensure they are adequately compensated for their expenses while remaining compliant with tax regulations.
