Advisory fuel rates
Prior to the Budget HMRC announced new advisory fuel rates that were introduced on 1 March 2011. They are:
Engine size followed by rate per mile for petrol, diesel and LPG
- 1400cc or less: 14p, 13p, 10p.
- 1401cc to 2000cc: 16p, 13p, 12p.
- Over 2000cc: 23p, 16p, 17p.
These mileage rates are the maximum that HMRC will accept that employers pay their employees for the business cost of petrol the employee has paid for - whether this be in their own vehicles or a company car. Payments in excess of these rates, for the reimbursement of car fuel costs only, will result in benefit in kind issues.
If employees are not reimbursed for petrol they pay for business mileage, or are paid at less than the above rates, they can make a claim direct to HMRC based on the published rates.
Tax free mileage allowance
In the Budget the basic 40p per mile, tax-free allowance for the business use of your privately owned vehicle was increased to 45p. Good news for employees that use their own vehicles for business trips. From 6 April 2011 you can now claim the new rate, 45p per mile, for the first 10,000 miles in any tax year. Over 10,000 miles there is no change, the rate drops to 25p per mile.
Employers are not obliged to pay the full 45p per mile. If they pay a lower amount employees can make a formal claim to HMRC for the difference to be taken into account.
Employers can reclaim part of any payments made to employees as input tax. However the employer will need to retain receipts in line with current legislation.
Does your employer provide private fuel for your company car?
If they do you will both suffer a tax and National Insurance increase. The figure on which car fuel benefits are based is increasing from £18,000 to £18,800 on 6 April 2011.
This tax charge can be eliminated if you repay your employer for any private fuel used. You will need to keep a record of your annual and private mileage to do this. Now that rates are increasing you may well be losing out if you don't make a private fuel reimbursement.
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