Advisory fuel rate change on the 1st July

HM Revenue & Customs (HMRC) announced amended Advisory Fuel Rates (guidelines on fuel only mileage rates for company cars) which will apply from 1st July 2009 until further notice. Have you communicated the changes (which include lower rates for diesels) to your drivers who claim fuel reimbursement for their company car business mileage, and despite recently increasing fuel prices, are some drivers still profiting from the rates paid?

Advisory fuel rates were first published in January 2002. Since January 2008 they have been reviewed twice a year with changes taking effect on the 1st January and 1st July. The latest rates are published on the HMRC website around one month in advance of these dates.

Changes to the rates will also be considered if fuel prices fluctuate by 5 % from the published rates and it is considered that the change will be sustained.

The new rates (January 1st figures in brackets) are as follows:

*Actual figures produced by HM Revenue & Customs.

Full details are available at: http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm including the methodology used to calculate the rates.

Earlier rates are available at http://www.hmrc.gov.uk/cars/advisory_fuel_archive.htm

If the rate paid to employees is equal or less than the published rates, HMRC accept that no taxable profit is enjoyed by the driver, or Class 1 NIC liability arises for the business. In exceptional circumstances, HMRC may agree to higher rates being paid where an employer can demonstrate that the cost of business travel in their fleet is higher than the guideline rates; for example where drivers need 4×4 vehicles for off road work environments.

Reviewing mileage rates

Any review of mileage rates should take the answers to the following questions into account:

Can you be sure that some of your drivers aren’t profiting from the rates due to the vehicle that they drive?

Do the rates paid encourage unnecessary journeys?

Is payment of the full mileage rate perceived as part of the employee overall salary package?

Does your vehicle policy encourage more fuel efficient cars and therefore reduce company and driver costs for all mileage?

Have you considered using fuel cards rather than your employees purchasing fuel and reclaiming business mileage?

Profiting from advisory rate

The advisory rates make certain assumptions about fuel prices and fuel economy. In reality, there may be winners and losers depending on the actual cost of fuel at the time of making a mileage claim, vehicle fuel economy and driving style.

If you already have a fleet based on fuel efficient cars it may be possible to set a lower reimbursement rate. This will reduce company costs and still recompense drivers fairly for the fuel they purchase.

The following examples highlight the potential differences between outwardly similar cars and assume 1,000 business miles covered and diesel at £4.74 / gallon (£1.043 / litre):

Cost of fuel purchased = miles / (official combined fuel consumption /1.15*) x cost per gallon.

* Actual fuel consumption and CO2 emissions are around 15% higher than manufacturers official fuel consumption figures. (Arval / EST June 2006)

The driver of the Focus 1.6TDCi would profit from the fuel rate while the driver of the 1.8TDCi would just about break even. If the higher (over 2000cc) rate is paid to the driver of the Honda Civic, a significant profit opportunity arises and it would be fair to pay the driver the lower mileage rate.

Larger cars including some variants of Toyota Avensis and Ford Mondeo are available with economical diesel engines above 2000cc, which may also allow drivers to profit from the higher advisory rate.

Paying standard rates to all drivers increases the risk of providing an incentive to drive further than necessary. Also consider that drivers who are not provided with vehicle economy advice or CO2 / MPG restrictions when choosing their company cars, may find themselves in a position where they are subsidising their employer as fuel costs rise and be tempted therefore to under report private mileage.

Combining a tailored fuel reimbursement rate with a low emission vehicle policy will help keep running costs to a minimum, while allowing regional and fluctuating fuel prices to be taken into account.

Calculating a break even fuel consumption figure

Calculating the mpg break even point for any combination of fuel reimbursement rate and fuel price is straightforward.

Cost of fuel (p / gallon*) / Advisory fuel rate (p / mile) = break even fuel consumption.

E.g. For the diesel fuel price as above and a car up to 2000cc: 474p/10p = 47.4mpg.

The Vehicle Certification Agency (VCA) database can be searched by fuel economy in increments of 10 mpg; this may help you plan future car purchases.
http://www.vcacarfueldata.org.uk/search/fuelConSearch.asp

Fuel cards

If you don’t use fuel cards at the moment, it may be time to consider their potential benefits. The provision of fuel cards to all drivers should not be confused with providing all fuel for business and private use, an arrangement which rarely promotes fuel efficiency, and is tax inefficient for most drivers.

Drivers would now reimburse the company for their private mileage. Ideally this will be based on the actual cost of the fuel used, rather than by pence per mile rate, which will encourage them to seek out lower cost fuel suppliers and drive more economically.

Fuel card companies will be able to provide the information you need to manage fuel use in your company vehicles. The measurement of fuel reduction initiatives, such as driver training, setting departmental mileage reduction targets, route planning etc will be easier to measure if the available fuel card data is used.

The Energy Saving Trust Fleet Hero Awards 2009

The Energy Saving Trust Fleet Hero Awards is an annual event which recognises businesses, both public and private, that have gone the extra mile to reduce carbon emissions from their fleet operations. Funded by the Department for Transport and supported by CBI, the 2009 Awards launched on June 24th and entrants have until Monday 24th August to get their entries in. There are 11 categories in total and all you have to do is submit a 250 word application explaining why you are a Fleet Hero for your chosen category or categories it couldn’t be simpler!

Winners will be announced at a prestigious networking event at City Hall in central London this November and profiled in a special supplement in the Guardian, the official media partner, and Fleet News. To find out how you can become a 2009 Energy Saving Trust Fleet Hero go to: www.guardian.co.uk/fleetheroes2009

Source: Energy Saving Trust