TT100: Tax-Free Business Mileage Rates – Update

July 25, 2007

Company car mileage rates change… yet again!

In Topical Tips 94 and Topical Tips we advised on the updated rates available for employees to claim on business mileage when they pay for all the fuel on a company car.

With effect from 1 August 2007, H M Revenue & Customs (HMRC) has increased the rates – making this the second time in a row they have been changed after only six months! This will reverse some of the reductions that were introduced in February, although overall the rates remain less generous than they were last August. The revised rates are shown below (with old rates in brackets):

Engine Size Petrol * Diesel LPG
1,400cc or less 10p (9p) 10p (9p) 6p (6p)
1,401cc to 2,000cc 13p (11p) 10p (9p) 8p (7p)
Over 2,000cc 18p (16p) 13p (12p) 10p (10p)

* Petrol hybrid cars are treated as petrol cars for this purpose.

Advance warnings

After HMRC suddenly announced the February 2007 change on 1 February itself, an agreement was made that subsequently one month’s notice of any further alterations would be given. As a result the announcement for this August was made on 27 June – meaning there are a few weeks to prepare for it this time! However, unlike the previous change, there will be no grace period and the new rates must be applied immediately from 1 August.

Future variations

Due to concerns over the effect of the continual changes to mileage rates, HMRC has once again confirmed that future reviews to the rates will only occur in the event of a variation in fuel prices of greater than 10%.

Barnes Roffe Topical Tips:

  • If you have a specific vehicle that substantially differs from the above, then it is possible to ask your local PAYE office for their agreement to using a different rate for that vehicle.
  • You must keep detailed records of amounts claimed (date, mileage, engine size, rates used, reason for the journey) to satisfy any HMRC visit.
  • This treatment is extended to employers with dispensations for fuel rates that are linked to the advisory fuel rates. Where a dispensation is in place this will need to be reviewed/adjusted.

Consult your Barnes Roffe contact partner for guidance in this important area

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