The Association of Car Fleet Operators has welcomed the rise in advisory fuel rates, saying it will end the subsidising of fuel costs by business drivers.
Rapidly escalating fuel prices have led to the early introduction of increased advisory fuel rates (AFRs) – with some rising by 3 pence per mile.
Last week, HM Revenue & Customs (HMRC) waived the usual one month’s notice of the increased rates, meaning firms can apply the new figures immediately rather than waiting until July 1.
AFRs apply where employers reimburse employees for business travel in their company cars, or when employees repay the cost of fuel used for private travel.
The rates vary depending on the vehicle’s engine size and fuel type and when they are used, and are tax-free.
Stewart Whyte, director of fleet operators’ association ACFO, welcomed the changes.
“We appreciate that HMRC has acknowledged the extreme financial pressure on many company car drivers who believe that in recent months they have effectively been subsidising their companies’ business mileage,” he said.
“Assuming that employers are able to apply the new rates during June and are willing to do so, the HMRC’s concession will go some considerable way towards alleviating the financial hardship that drivers have been feeling.
"There is still some encouragement in these new rates for employees to drive as economically as possible, but at least the element of subsidising employers has gone.”
John Lewis, BVRLA director general, said: “After encouraging drivers away from using company fuel schemes, it is only right that the Government has moved to introduce fair and reasonable compensation for the fuel used by business motorists.”
Liz O’Donnell, policy adviser at HMRC, said: “We know that some will struggle to amend their systems to cope with such a quick change, but others will be able to pay increased rates immediately.
“When to introduce the new rates will, to a certain extent, be for employers and employees to negotiate. HMRC is not being prescriptive in these difficult times.
"Employers can backdate any rises to June 1 if they choose, or just pay the increased rates when is most convenient for them to do so.
"We know that some employers pay less than the AFRs anyway, so we are trying to be as flexible as possible to all employers and employees.
“Allowing the rates to be used from June 1 is an acknowledgement of how sharply fuel prices have increased in recent weeks and that some drivers may be subsidising their employers for business travel.
"In the future we will still give one month’s notice of rate changes.”
The new rates replace those announced on New Year’s Day.
Because of rocketing prices at the pumps, the rates have increased for all vehicles except for LPG cars up to
Diesel vehicles with an engine capacity of more than 2,000cc showed the largest increase, rising by 3ppm.
The change follows HMRC’s decision at the end of 2007 that AFRs would be updated twice a year – on January 1 and July 1 – with one month’s notice of change and in the event of fuel prices being more than 5% higher than those used at the time of the previous review.
Previously, rates were reviewed when fuel prices fluctuated 10%, leaving many company car drivers out of pocket.