Introduction
From Monday 1 December 2025, HM Revenue & Customs (HMRC) has rolled out a new set of Advisory Fuel Rates (AFRs) for electric, petrol and diesel company car users across the UK.
These rates are designed specifically for business-related mileage reimbursement and come with a fresh set of guidance on tax treatment and employee repayment.
The updated AFRs do not apply to private vehicles, but rather impact those driving company cars either for business use or when employers need to reclaim the cost of private fuel usage.
With rising fuel costs and the ongoing shift towards electric vehicles, HMRC’s adjustments are part of a regular review designed to better reflect actual running costs.
The changes mark a continued effort by HMRC to align tax-free allowances with real-world fuel prices and vehicle efficiency trends.
But with complex implications around tax liability, National Insurance, and fuel benefit charges, it’s crucial for both employers and employees to understand the updated rules.
Who the New Advisory Fuel Rates Apply To
These new rates are exclusively relevant to employees who drive company cars. They are not intended for personal car users or self-employed workers. The purpose of the AFRs is to ensure fair reimbursement for those driving as part of their job while also defining thresholds for avoiding additional tax liabilities.
Key scenarios covered:
- Reimbursing employees for business-related mileage in company cars.
- Employers recouping private mileage costs from employees.
HMRC clarifies:
“If the mileage rate you pay is no higher than the advisory fuel rates for the engine size and fuel type of the company car, there will be no taxable profit and no Class 1A National Insurance to pay.”
This means employers can safely reimburse or recover costs without triggering additional tax obligations provided they follow the published rates.
Date of Implementation: What Changed on 1 December 2025
The updated AFRs took effect from Monday, 1 December 2025, replacing the previous rates used in the preceding quarter. HMRC updates these figures quarterly in line with changes in fuel prices and economic conditions.
The update affects the following:
- Petrol-powered company cars
- Diesel-powered company cars
- Electric vehicles (EVs) used as company cars
- Hybrid vehicles (treated according to their fuel type)
Each fuel type and engine size is assigned a specific pence-per-mile rate, which forms the baseline for business travel reimbursements or private usage repayments.
Tax Implications of Using the Rates Correctly
Using the official AFRs protects both employer and employee from unintended tax liabilities. If a company adheres to the published rates, no extra National Insurance or taxable profit is incurred.
However, HMRC warns of potential issues if companies deviate:
“If you pay rates that are higher than the advisory rates but cannot show that the fuel cost per mile is higher, there will be no fuel benefit charge if the mileage payments are only for business travel. Instead, you’ll have to treat any excess as taxable profit and as earnings for Class 1 National Insurance purposes.”
Employers must therefore maintain proper documentation to justify any reimbursement rates above the official AFRs.
Private Mileage: Rules for Employee Repayments
When company fuel is used for private travel, employees are required to repay the employer to avoid being taxed on it. These repayments must align with the advisory rates or be higher, depending on the actual fuel cost.
HMRC guidance adds:
“There will be no fuel benefit charge if you correctly record all private travel mileage and use the correct rate (or higher), to work out how much your employees must repay you for fuel used for private travel.”
This protects employees from the fuel benefit tax, which can otherwise be a costly addition to their annual tax bill.
Employers are also free to use lower repayment rates, but only if they can demonstrate that the full cost of private fuel has been covered by the employee.
Flexibility for Fuel-Efficient and Electric Vehicles
For vehicles with better fuel economy or electric models, HMRC allows a degree of flexibility. Companies can set their own reimbursement rates, provided they reflect real costs.
HMRC confirms:
“If your cars are more fuel efficient, or if the cost of business travel is higher than the guideline rates, you can use your own rates to reflect your situation.”
This is particularly relevant to EVs, where actual charging costs may vary significantly depending on location, time of use, and provider tariffs.
Final Summary: HMRC updates AFRs for company cars
HMRC’s revised Advisory Fuel Rates, effective from 1 December 2025, represent an important update for any business with company cars in operation. These rates influence not just how employers reimburse drivers, but also how private fuel use is taxed or exempted.
The changes reinforce the importance of keeping accurate mileage records, understanding fuel cost claims, and maintaining documentation if businesses wish to diverge from the set guidelines.
As company fleets gradually electrify and fuel costs fluctuate, HMRC’s AFRs remain a crucial compliance tool designed to offer fairness while preventing misuse. Employers and drivers alike must stay informed to avoid unexpected tax bills and ensure smooth, tax-efficient travel operations.
