ACFO Calls For Review Of Advisory Fuel Rates For Company Cars

A major review of the Inland Revenue’s advisory fuel rates for company cars has been called for by ACFO, the leading UK body representing car and van fleets, amid concerns that the high price of fuel is leaving drivers out of pocket.

The demand follows a spate of fuel price rises in 2004 which, says the organisation, has had a massive impact on employees driving on business purposes as well as motorists in general.

The advisory fuel rates for company cars apply where employers:

• reimburse employees for business travel in their company cars, or
• require employees to repay the cost of fuel used for private travel.

Since January 2002 the mileage rates have been set at 10p per mile for petrol cars and 9p per mile for diesel cars up to 1400cc; 12p and 9p respectively for cars of 1401cc to 2000cc and 14p and 12p for cars above 2000cc.

The Inland Revenue set the rates based on unleaded petrol costing 77p a litre (350p per gallon) and diesel costing 78p per litre (354.6p per gallon). However, the Inland Revenue says it will review the rates during a tax year when fuel prices vary by more than 10% from the prices that were used when the rates were calculated.

ACFO says that although Fleet Audits’ figures and a wide range of other published data, reveal that the UK average price of fuel rose month-on-month last year to peak at around 86p per litre (390.9p per gallon) for unleaded petrol and 89p per litre (404.6p per gallon) for diesel - rises of 11.1% and 11.4% respectively - the advisory reimbursement rates have remained static.

ACFO director Stewart Whyte said: ‘The Inland Revenue promises to review the rates if fuel prices increase by 10%, but it has not done so. It stresses that the structure of the rates are ‘advisory’, but within ACFO, we have had several members report difficulties with some tax offices, which appear to take the rates as ‘statutory’ rather than as ‘advisory’.

‘While the national average price of diesel and petrol has risen by more than 11%, according to Fleet Audits and other market watchers, there have been significant regional increases over and above that figure. With no increase in the tax-free advisory fuel rates drivers are losing money - and employers cannot help without generating a tax liability.

‘It is almost certain that the price of the main road fuels will now stay relatively high for the rest of 2005 ACFO, therefore, wants a thorough review of the advisory fuel rates for company cars, with either better guidelines about the flexibility available under the present rules, or clearer instructions on the flexibility of the structure to take account of local circumstances. After all, this flexibility is shown clearly on the Inland Revenue’s own website - but some local offices take a more rigid approach.’

ACFO’s call follows requests made throughout 2004 for the Inland Revenue to review the whole Approved Mileage Rates system, which sets the structure and rates which can be paid tax-free to employees who drive their own cars on company business.

ACFO says the current 40p per mile reimbursement for the first 10,000 miles and 25p a mile thereafter is over-generous for higher-mileage cases, and actually works against the Inland Revenue’s general approach to discourage unnecessary mileage. The generosity has also helped to fuel the decision by some employees to opt out of company car schemes.

ACFO seeks, as a specific objective, the 10,000-mile threshold to be lowered, to a figure more like the 4,000-mile level that was in place until 2002.

Mr Whyte said: ‘The forthcoming March Budget provides an ideal opportunity for the Chancellor of the Exchequer to announce a restructuring of both the advisory fuel rates for company cars and the AMAP rates. We will be working hard to put forward this case for consistent and fairer treatment.’