Tony Burgess, director – Merchant Network at fuelGenie outlines why fleets needs to be up to speed with AFRs.

Fleets need to stay on top of the latest Advisory Fuel rates – fuelGenie

One of the many responsibilities business owners face is the accurate reimbursement of fuel expenses for employees. With the Advisory Fuel Rates (AFRs) due for a quarterly review on 1st June, now is the time for employers to ensure their business is compliant with HM Revenue and Customs (HMRC) guidelines.

Understanding the need for Advisory Fuel Rates

AFRs were first introduced in the UK in 2002, providing employers across various industries with a benchmark for reimbursing employees for business-related fuel expenses incurred while using company vehicles.

Since their inception, AFRs have undergone quarterly reviews and updates to reflect changes in fuel prices and maintain their relevance to current market conditions. By adhering to AFRs, business owners can ensure their reimbursement policies align with HMRC regulations.

The HMRC requires employers to use either the actual fuel costs incurred by their employees or the published AFRs for reimbursement purposes. Failure to comply with these guidelines may result in penalties, increased tax liabilities, and potential audits. By regularly checking and implementing the most recent AFRs, business owners can mitigate these risks and ensure accurate and fair reimbursement practices are being adhered to.

The key benefits of AFRs

There are many reasons as to why AFRs can be an asset to businesses, with accurate reimbursement being the most obvious one. By utilising the most up-to-date rates, business owners can ensure that employees are reimbursed appropriately, neither overcompensating nor short-changing them along the way.

This leads onto another key benefit: employee satisfaction. By conducting reimbursement in a consistent and transparent way, employees are given the confidence that their compensation is based on established rates that are not subject to arbitrary decisions. This transparency helps foster trust within the organisation, and therefore promote a positive work environment.

Staying current with AFRs also enables business owners to effectively manage costs and budget for fuel expenses. By aligning their reimbursement rates with the published AFRs, businesses can establish a consistent and standardised approach to fuel cost management, while unnecessary expenses can be avoided. Overcompensating employees beyond the approved AFRs can lead to increased costs and reduced profitability. Conversely, adhering to the recommended rates avoids potential penalties, tax liabilities, and associated financial risks.

How effective are AFRs in the current financial climate?

When viewed within the context of the fuel prices that motorists were faced with over the past year, the effectiveness of Advisory Fuel Rates (AFRs) can be subject to debate.

AFRs are designed to provide a benchmark for fuel reimbursement based on average fuel costs, but they may not always align perfectly with the current market rates. After all, fuel prices tend to fluctuate, which means there may be instances where AFRs do not fully reflect the increased costs experienced by individuals.

In situations of high fuel prices like the ones seen throughout most of 2022, businesses might consider implementing additional measures to ensure fair reimbursement. For instance, they could establish a mechanism to periodically review and adjust reimbursement rates based on current fuel prices, which may help address the potential discrepancy between AFRs and the actual cost of fuel.

It is important for employers to strike a balance between maintaining cost efficiency and ensuring that employees are not unduly burdened by high fuel costs. By staying informed about the prevailing fuel prices and regularly assessing the effectiveness of AFRs, employers can make informed decisions to adjust reimbursement policies as necessary.

In summary, while AFRs provide a standardised framework for fuel reimbursement, they may not always account for high fuel prices. Additional measures, such as periodic rate adjustments and promoting fuel-efficient practices, can complement AFRs to ensure fair and reasonable reimbursements in times of increased fuel costs.

To find out about advisory fuel rates, when to use them, and how they’re calculated, you can visit the HMRC website.