Mileage Rates September 2011

If employees use a company car (or van), and pay for the fuel themselves, the company is able to pay a ‘fuel-only' mileage rate for any business journeys.

When the fuel-only rate is the same as, or less than, HMRC's advisory rate, it is guaranteed to be tax free. The HMRC advisory rates are revised every three months.

Fuel-Only Rates 1 September 2011

Petrol & LPG Engines
1400cc or less: Petrol 15p, LPG 11p
1401 to 2000cc: Petrol 18p, LPG 12p
Over 2000cc: Petrol 26p, LPG 18p

Diesel Engines
1600cc or less: 12p
1601 to 2000cc: 15p
Over 2000cc: 18p

Average Fuel Costs

These fuel-only rates are based on the following pump prices:

• Petrol: 134.6p/L
• Diesel: 139p/L
• LPG: 75.8p/L

Ronan McKeown, director of Alliance Accountants, points out that in some parts of the country forecourt prices can be higher than the average as defined by HMRC:

"If the prices in your local area are significantly higher, or your company cars are less fuel-efficient than average, you can pay a higher mileage rate. You need to keep a record of how you calculated that higher rate."

Use of Own Cars

If employees use their own cars for business journeys, you can pay a tax free mileage rate of 45p per mile for the first 10,000 business miles driven in one tax year, and 25p per mile for extra miles in the same year.

This rate was recently increased from 40p per mile on 6 April 2011. Always pay the higher rate to your employees, and to yourself, where you undertake business journeys in your own car.

VAT Advice

McKeown gives the following advice regarding the VAT element:

"Where the company is VAT registered it can reclaim VAT on the fuel element of mileage rates paid to employees, if the employee supplies the company with VAT receipts for fuel showing enough VAT to cover the claim.

The advisory fuel rates are purely for fuel. The 45p per mile rate is only partly for fuel, the excess above the advisory fuel rate is to pay for other costs of running the car which are incurred by the employee.

"For those who are self-employed, with an annual turnover below the VAT threshold of £73,000, you can use the 45p rate as an approximation for the cost of business journeys in your own car." McKeown reminds businesses.