When an employee drives a company car on business, someone has to settle the fuel: either the company pays for all fuel and the employee repays private miles, or the employee buys fuel and the company reimburses business miles. HMRC’s advisory fuel rates are the numbers that keep that settlement tax-free. For any fleet running company cars, they are a quarterly rhythm worth building into the calendar.
The advisory fuel rates are per-mile figures for company cars, set by engine size and fuel type, reviewed quarterly. Their function: if the mileage rate you pay is no higher than the advisory fuel rate for the engine size and fuel type of the company car, there will be no taxable profit and no Class 1A National Insurance to pay.
The flip side matters just as much. If you pay rates higher than the advisory rates but cannot show that the fuel cost per mile is actually higher, the excess is treated as taxable profit and as earnings for Class 1 National Insurance purposes. So the advisory rate is the ceiling for clean reimbursement - exceed it without evidence and you have created a payroll problem out of an expenses policy.
The rates also run in the other direction: where employees repay the company for private fuel, using the advisory rate for the repayment avoids a fuel benefit charge. And you do not need to use the advisory rates at all where you can show employees cover the full cost of private fuel by repaying at a lower mileage rate.
HMRC publishes the working openly. Each rate starts from a mean MPG figure per engine band and the current fuel price, giving a pence-per-mile cost which is then rounded to the nearest whole penny. Rates ending in 0.5 pence are rounded down when the underlying unrounded figure ends in less than 0.5. To take the published example figures: petrol cars up to 1400cc at a mean 50.7 MPG with fuel at 159.9 pence per litre produce 14.3 pence per mile, giving an advisory rate of 14 pence; a diesel of 1601 to 2000cc at 49.6 MPG and 179.2 pence per litre gives 16 pence.
The quarterly review tracks fuel prices, so the rates move. A reimbursement policy written two years ago at old rates is now either short-changing drivers or paying above the current ceiling - check the table each quarter and adjust.
Fully electric company cars have their own advisory electric rate, and since public charging costs so much more than home charging, HMRC publishes two. The home charging rate is calculated from the Department for Energy Security and Net Zero’s annually published pence-per-kilowatt-hour cost, uprated quarterly by the ONS Consumer Prices Index for electricity. The public charging rate uses price data from the Zapmap Price Index, reflecting the average price of public charging at slow or fast chargers below 50 kilowatts.
The practical consequence: a driver who charges at home overnight is reimbursed at a very different rate from one who lives on public chargers, and paying the home rate to a public-charging driver underpays them genuinely, not just administratively. Fleets with EVs should map which drivers actually use public charging and apply the right rate - the data usually exists in the charge cards.
Do not confuse advisory fuel rates with approved mileage allowance payments. AMAPs - the per-mile rates for employees driving their own cars on business - are a separate scheme with its own figures. Advisory fuel rates exist only for company cars, where the car belongs to the employer and only the fuel needs settling. Mixing the two schemes in one policy document is a classic payroll error: the driver in their own car gets AMAPs, the driver in the company car gets advisory rates, and nobody gets both.
Handled this way, fuel reimbursement disappears from the tax conversation entirely - which is exactly where an expenses system should live.