Advisory fuel rate system to change

The Government has accepted proposed changes to the way advisory fuel rates are introduced.

Due to pressure from fleet operators' body ACFO - or Association of Car Fleet Operators - HM Revenue and Customs has announced it will revise how it sets the advisory fuel rates.

The rates in question apply where companies remunerate employees for business travel in their company cars, or require repayment for the cost of fuel for private travel. The rates are based on engine size and fuel type, and are considered tax-free.

In the past the rates have been published twice a year, with the next review due to take place on June 1.

The first change for this year is that the rates will now be reviewed quarterly instead of bi-annually, meaning they should be more fairly matched to oil prices. However, this means the ‘interim' changes agreed for when fuel prices change by more than 5% will be cancelled too.

Also on June 1 the 10% reduction in manufacturer MPG figures to reflect real-world driving conditions will be increased to 15% in order to make them even more realistic.

There will also be an extra band introduced for diesel cars to take into account the deluge of smaller-engined diesel vehicles recently available. Whereas currently there are two bands (up to 2,000cc and above 2,000cc), under the new system there will be three: up to and including 1,600cc; 1,601cc-2,000cc; 2001cc and above.

The new advisory fuel rates will be published over the next couple of days, although as before employers will have one month to implement them. This means by July 1 the new rates will have to be implemented.

ACFO director Stewart Whyte said: "We are delighted that HM Revenue & Customs has accepted our arguments over Advisory Fuel Rates.

"Overall, while we have yet to learn exactly what the new rates will be, we believe the new mechanism for making the calculation is robust, fair to all sides and easy to implement."