The way advisory fuel rates (AFRs) are reviewed has been changed by Her Majesty’s Revenue and Customs (HMRC).

Following discussions with fleet associations, HMRC confirmed it will now give one month’s notice of rate changes.

It also confirmed that the rates will be reviewed twice a year, with any changes taking effect on January 1 and July 1.

There will also be a mechanism where rates can be changed should fuel prices fluctuate by 5% from the current rate.

This counters criticism from fleet managers that the previous system, which had a 10% trigger, had proved to be unwieldy and slow-acting.

They complained that drivers were often left out of pocket when fuel prices fluctuated, saying that they were paid rates that bore little relation to prices at the pumps.

The British Vehicle Rental and Leasing Association (BVRLA) was instrumental in negotiating the changes.

Its director-general, John Lewis, welcomed the announcement.

He said: “Given the current volatility in fuel prices it will help to smooth out the peaks and troughs and avoid unnecessary administrative burden on fleets.”

Fleet operators’ association ACFO, which was also heavily involved in the discussions, was equally upbeat about the changes.

Director Stewart Whyte said: “We believe ACFO has played a very significant role in helping HMRC gauge fleet decision-maker views on the changes, as the new rules are closely aligned to our proposals.

“Now that the HMRC tax-free rates will be reviewed more frequently, company car drivers will not be left out of pocket.”

Elizabeth O’Donnell, HMRC policy adviser, told Fleet News: “The overwhelming response to the proposals was positive and there was a general consensus that they were a welcome move which would clarify the existing framework and make it easier to implement future changes to the advisory fuel rates.

“HMRC is aware of the need to strike a balance between giving certainty for employers on the level of rates and reimbursing drivers for the cost of fuel.”

AFR changes

Advisory fuel rates are exempt from benefit-in-kind tax and National Insurance. Changes to the way in which they are published will see:

One month’s notice given of any change to the mileage rates.

Bi-annual reviews with rates taking effect on January 1 and July 1 each year. Therefore, any rate changes will be posted on the HMRC website in early December or early June to allow employers implementation time.

Rates will be reviewed in the event of a variation in fuel prices of greater than 5% from the prices used at the time of the previous review.