March 2023 advisory fuel rates – all Change

The final set of advisory fuel rates for company cars for this tax year has been released by HMRC.

While there has been a reduction in the majority of rates across most fuel types, the advisory rate for fully electric cars is a notable exception. After a period of no movement prior to last quarter, from 1 March the electricity rate increases again, this time from 8p to 9p a mile, reflecting the rising energy costs we are all experiencing.

Should you be providing fuel for private use to employees?

As the end of the tax year approaches, it is a good opportunity to consider your more general approach to fuel within your dealership. You may still be providing fuel benefit to your employees, but I’ve seen an increase in the number of motor retailers who are stopping this on cost grounds. 

This can be an awkward conversation to have with employees, but a successful outcome is more likely if it can be shown that whatever alternative is on offer, puts them in a better position.

One way to do this is to work out whether fuel benefit is in reality costing them more than if they covered their own fuel costs.

Is fuel benefit financially worthwhile?

A relatively simple three-stage calculation can be used to aid decision-making.

1. Calculate the real cost of the fuel benefit = BIK value x the employee’s marginal rate of tax
2. Work out the cost per mile of running the car they normally drive
3. Divide real cost of fuel benefit by running cost per mile to give break even point for private mileage

Many employees with low private mileage get a surprise when they see their own calculation, as they often assume receiving fuel benefit will be best for them. By removing this benefit however, cost savings can often result for both dealer and employee.

If you do go down this route, care will be needed. Firstly, you must ensure that you have adequate records to show that fuel is no longer provided for private use. Secondly, if you give an alternative, for example, a fuel allowance, advice should be taken to ascertain the correct tax treatment.

The latest advisory fuel rates for company cars can be found here https://www.gov.uk/guidance/advisory-fuel-rates.