Mileage rate discrepancy is ‘nightmare for employers’

HM Revenue & Customs (HMRC) has caused “a nightmare for employers” by increasing the advisory fuel rates that can be reimbursed for drivers of company cars, but not raising rates for people who use their own cars on business.

The new rates (see table) will come into effect on 1 July but HMRC will allow employers to use them from 1 June. For employees using personal cars on business, the rate will remain at 40p a mile. If employees are reimbursed at levels above the advisory fuel rates, the balance will be subject to tax.

But Inez Anderson, tax director at Smith & Williamson, said figures from the AA showed that the cost per mile for fuel for a petrol car costing between £10,000 and £13,000 had increased from 44.3p in 2003 to 48.17p at the start of 2008.

Anderson pointed out: “Fuel prices are more expensive now than when these rules were put in place. Employers are hoping that the advisory fuel rates for staff using their own cars might increase, but these rates are set in legislation. Employees won’t want to pay the tax, so employers will have to. This is causing a nightmare for employers.”