Industry calls for AFRs to move with the times
27 February 2019
Author: Jack Carfrae
Leading fleet figures call for a review of AFRs in light of WLTP and new technologies, while HMRC claims they are 'unaffected'. Jack Carfrae reports.
The fleet industry has called on the government to review advisory fuel rates (AFRs) and render them more appropriate for modern operations, but HMRC has rebuffed claims that the system is outdated.
Three leading industry figures contacted by Business Car expressed a desire to see the current AFR regime updated to keep pace with developments such as WLTP, and the increasing number of new vehicle technologies and fuel types.
Acfo chairman John Pryor said: "I would certainly introduce one for plug-in hybrids. I would do it in line with CO2 and move it away from engine size. Obviously, I would keep the differential between diesel and petrol, and I would also make sure the same framework is applied to AMAP rates."
"AFRs have been around for a long time and I think there is an opportunity now, with a change in the fuel measurement system, where it would be really useful to review them or give some clarity on what will happen in the future," added Chris Chandler, principal consultant at Lex Autolease. "It will need to change with WLTP, but there hasn't been much discussion about this or how it will be dealt with."
Peter Eldridge, director of ICFM, called for a complete revamp of the system to better reflect the nuances of modern vehicles.
"What I would create is a balanced AFR model that took full account of all the powertrain options that are out there - lined up against each other - so whatever mix of fleet you have got, you could actually get a proper blend of AFRs," he said.
In response, a spokesperson for HMRC said: "Other than the quarterly reviews, there are no current plans to review the AFR system in a broader way," and claimed rates were "unaffected by WLTP - this is because they are not CO2 emissions of a car. AFRs are based on the engine size, fuel type and price, and the mean miles per gallon."
It has been suggested that fuel reimbursement costs to businesses could rise as fleets increasingly adopt newer vehicles measured under WLTP, though the reverse may apply to drivers.
"Technically, you could leave it to run as it is," said Chandler. "There would be some hiccups in the transition but, at the end of the day, if mpg reduces under the official WLTP figures, AFR reimbursement will go up. So there probably won't be many complaints from drivers, but from a business perspective, obviously fuel costs under AFR would go up."
Following a long-term campaign by Acfo, HMRC introduced an AFR of 4p per mile for pure-electric vehicles in September 2018. The move was welcomed by the industry and Chandler claimed it simplified the process of reimbursing drivers for electricity costs, due to price fluctuations across the public charging network. However, Eldridge described it as "only a token effort".
Plug-in hybrid cars are still treated as petrol or diesel depending on their internal combustion power source, and issued rates according to engine size. The majority of such models on sale today are petrols, which are currently charged 11p, 14p or 21p per mile according to capacity.
Despite widely hailed tax breaks for both businesses and company car drivers, plug-in hybrids gained a reputation for generating higher-than-average fuel reimbursement costs for businesses, as many drivers failed to charge the batteries with significant regularity.
"We saw evidence of this with the introduction of the Mitsubishi Outlander PHEV," said Pryor. "A lot of fleets went for that and then found their costs rose, because they were giving employees fuel cards to do their business mileage. People weren't charging them up at all and their costs went up. I certainly know of a few fleets that said they really wanted to get rid of them, because they saw a large increase in their fuel bill."
According to Gov.uk, AFRs are calculated based on manufacturers' mean mpg figures, weighted by annual sales to businesses, with a 15% reduction for petrol and diesel models to account for real-world driving conditions and "lower fuel economy for older cars". Average fuel prices are also incorporated and the rates adjusted in each quarterly review.
The website states that figures are currently based on cars sold between 2015 and 2017, therefore using the outgoing NEDC cycle, while LPG vehicles are subject to a 20% reduction on the equivalent petrol model's official figure because of its lower energy density.
A common criticism is that AFRs are still issued for LPG vehicles but not for other, now more abundant, powertrains - chiefly plug-in hybrids. When asked why, HMRC's spokesperson said: "AFRs reflect all types of fuel used by car drivers, which include LPG - vehicles may no longer be available in the market, but LPG converted cars are still in use."
A 2018 investigation into LPG use among fleets by Business Car revealed that the fuel was employed in a minority of specialist cases. At the time, Eldridge said: "The situation with LPG is that it has indeed died a natural death. In all honesty, I can't think of anyone who would have anything useful to say about it", while Pryor added: "I have seen no movement or push from the manufacturer side, converters or fuel stations. I am sure there are some who store it in bunkers and use it but, for the main core, this is not an option."
Though aftermarket conversions remain available, manufacturers do not offer factory-converted LPG vehicles in the UK.
The current system has also come under fire for encouraging drivers to opt for larger diesels, as the current rate of 13p per mile for cars with engine capacities above 2,000cc is favourable to those in the region of 2.2 litres, while those with 1,601-2,000cc engines currently receive 11p per mile.
It has been alleged that many fleets continue to use AFRs out of simplicity, as nationally enforced rates represent a straightforward method of reimbursement, despite issues with accuracy and modernity.
"It is an easy one for a lot of businesses, because they don't get into an argument with individuals; you get one thing, it is set by the government and that is it,"
The experts to whom Business Car spoke recommended a managed fuel service to avoid the issues caused by AFRs, and increased accuracy of reporting, although they cautioned that such methods require effort and administration.
"AFRs are a blunt instrument but there are other ways of doing it," said Pryor. "If a company wants to introduce a properly managed fuel card process, with technology now, they can have it accurate to the penny."
"To have fuel cards and report business versus private mileage every month, and do the reconciliation calculation, is an administrative burden and if somebody doesn't put their mileage in properly or transposes figures - whatever - it does take some admin and some managing," added Chandler.
Acfo continues to lobby for an AFR specific to plug-in hybrid vehicles. The organisation renewed its call in November 2018, when with the support of multiple industry members it requested standalone rates for "plug-in hybrid petrol cars linked to electric mileage range and current engine capacity-based AFRs for petrol cars with reimbursement rates ranging from 5p to 19p a mile. and 5p to 12p a mile for diesel cars."
Acfo's online petition for HMRC to publish the rates remains live. Fleets are able to sign it by visiting https://www.surveymonkey.co.uk/r/655XR3P.