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TAX UPDATE: HMRC changes fuel rate start date

Date: 09 February 2007   |   Author: Tristan Young

HM Revenue and Customs has delayed the implementation of new advisory fuel rates it first published a week ago, by switching the implementation date from 1 February to 1 March.

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

On 30 January HM Revenue and Customs published new, significantly lower, advisory fuel rates which were due to come into effect on 1 February. The lower rates were received with much criticism from the business car community.

Although the level of the cuts has not been changed the extra month will give businesses and drivers more time to adjust.

Explaining the situation an HMRC spokesman said: "Where employers have practical difficulties implementing the new lower rates they can continue to use the older higher rates for a further month, i.e. to 28 February 2007, without having to take account of the income tax, NIC and VAT implications of paying allowances at the higher rate. This will allow time for drivers and employers to adjust to the new rate.

"This treatment will extend to those employers with dispensations for fuel rates which are linked, usually by a formula, to AFRs."

He added: "Employers can however use the new lower rate with effect from 1 February for employees with fuel cards who reimburse their employers for private fuel bought with a company fuel card."

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)

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.

When the changes were revealed last week they drew much criticism from the business car market. 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.