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TAX LATEST: HMRC issues new advisory fuel rates (Jan 2007)

Date: 31 January 2007   |   Author: Tristan Young

HM Revenue and Customs has published new, significantly lower, advisory fuel rates that came into effect on 1 February to the criticism of the business car community.

The advisory fuel rate is HMRC's guideline on maximum fuel-only reimbursement that companies can pay drivers without attracting tax.

The cuts have been brought in because figures used by Revenue & Customs show both better average mpg figures and a drop in the cost of fuel since the guidelines were last changed, just seven months ago.

New Advisory Fuel Rates - old rates in brackets
Engine SizePetrolDieselLPG
1400cc or less9p (11p)9p (10p)6p (7p)
1401cc to 2000cc11p (13p)9p (10p)7p (8p)
Over 2000cc16p (18p)12p (14p)10p (11p)

When the changes were revealed last week they drew much criticism from the business car market. BusinessCar.co.uk experienced a flood of comments from readers expressing their anger at the changes.

Trade body ACFO also hit out at the Whitehall officials, claiming the rates are unrealistic.

"All rates on the schedule have been reduced by either 1p or 2p per mile, which in some cases amounts to a near 20% cut, although only petrol prices have changed (dropped) by more than the 10% trigger-level declared by HMRC themselves," said an ACFO spokesman. "HMRC calculate that diesel - now powering over 50% of the company car fleet - has fallen by only 8%.

"This is likely to cause concern - and significant HR and payroll administration - among employers who use the HMRC advisory rates. There is also a long-term concern by fleet managers that many individual tax offices ignore the 'advisory' nature of the schedule, and apply it rigidly irrespective of the flexibility, which HMRC claims to be implicit in the structure of the arrangements."

The HMRC justified its figures by saying it used AA, DTI and SMMT data to calculate the advisory rates.



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