The Chancellor of the Exchequer has confirmed that the Government will review the Advisory Fuel Rates (AFR), which dictate how much employees can be reimbursed tax-free for using their personal cars for business journeys. The announcement follows persistent calls from various quarters, including prominent consumer finance expert Martin Lewis, who described the potential update as a 'really important change' for workers across the UK.
Currently, HMRC's Advisory Fuel Rates are used by employers to pay employees for business travel in company cars, or by employees to claim tax relief on mileage if their employer pays less than the approved amounts. These rates are distinct from the Approved Mileage Allowance Payments (AMAPs), which apply when employees use their own cars for work and can claim up to 45p per mile for the first 10,000 miles and 25p thereafter, tax-free. However, the AFRs, which are updated quarterly, specifically relate to the fuel component of these journeys and have been under scrutiny for not adequately reflecting the fluctuating and often rising cost of petrol and diesel.
The current framework has drawn criticism for failing to keep pace with the significant increases in fuel prices observed over recent years. Many employees who rely on their personal vehicles for work, such as sales representatives, home carers, and delivery drivers, have reported that the existing reimbursement rates do not fully cover their actual fuel expenditure, effectively leaving them out of pocket. This financial burden can be particularly acute for those in sectors where extensive driving is a core part of their job responsibilities.
Martin Lewis, founder of MoneySavingExpert.com, highlighted the importance of this review for the millions of people who use their cars for work. He has consistently advocated for a fairer system that ensures employees are not subsidising their employers for necessary business travel. A rise in the AFRs would mean that employers could reimburse their staff at a higher tax-free rate, alleviating some of the financial pressure caused by high fuel costs.
The review by the Treasury and HMRC will examine the methodology and levels of the current rates. While specific details on the timeline or the extent of potential changes have not yet been disclosed, the announcement signals a recognition from the Government of the financial pressures faced by both businesses and their employees. Any adjustment to these rates would have a direct impact on the operational costs for businesses and the take-home pay for many workers across various industries.
Opposition parties have also frequently raised concerns about the cost of living crisis and the impact of rising expenses on working families. They are expected to scrutinise the specifics of any proposed changes to ensure they provide meaningful relief and are not merely cosmetic adjustments. The outcome of this review will be keenly watched by businesses, employee organisations, and individual drivers alike.
Source: HM Treasury, MoneySavingExpert.com