Why HMRC Moves These Rates Every Three Months
Every quarter, without fanfare and usually without a press release most business owners ever see, HMRC recalculates a set of figures that determine how much a company can pay an employee per mile for fuel used on business journeys in a company car — and how much of that payment escapes tax and National Insurance entirely. These are the Advisory Fuel Rates, known in payroll circles simply as AFRs, and the latest review took effect from 1 September 2026. The mechanism behind it is straightforward, if underappreciated: HMRC tracks average fuel prices across petrol, diesel and LPG, combines them with typical miles-per-gallon figures for each engine size band, and recalculates a pence-per-mile figure meant to cover fuel cost only, not wear, insurance or depreciation. When pump prices move enough between reviews, the rate moves with them, and this quarter a handful of bands shifted by a penny or two on the back of a weaker pound and higher refinery maintenance costs through late summer. If your business runs even a handful of company cars, none of this is a rounding exercise — get the figure wrong on a single payroll run and HMRC can treat the excess as a taxable benefit, with Class 1A National Insurance following close behind. It sounds trivial until you multiply a one-penny error across a fleet covering thirty thousand business miles a year.
The Rates From 1 September 2026, Band by Band
Petrol
- 1400cc or less: 12p per mile
- 1401cc to 2000cc: 14p per mile
- Over 2000cc: 22p per mile — up 1p on the June figure
Diesel
- 1600cc or less: 11p per mile
- 1601cc to 2000cc: 13p per mile
- Over 2000cc: 16p per mile
LPG
Liquefied petroleum gas keeps its own, lower band structure, reflecting the fact that LPG has consistently undercut petrol and diesel at the pump for years: 11p for engines up to 1400cc, 13p for 1401cc to 2000cc, and 19p above that. Few employers still run LPG fleets in 2026, but the handful that do — mostly older taxi and courier operations converted years ago — still need the correct figure sitting in payroll, because HMRC applies the same evidence standard to a three-car LPG minicab firm as it does to a three-hundred-car sales fleet.
Electric — the Advisory Electricity Rate
Fully electric company cars don't use the petrol or diesel table at all. They sit under a separate figure called the Advisory Electricity Rate, or AER, which moved to 8p per mile from 1 September, up from 7p in June. HMRC calculates the AER from average domestic electricity costs converted into a per-mile equivalent across the current fleet of electric company cars, and because wholesale electricity prices have swung far more than fuel prices over the past two years, the AER has actually moved more often, proportionally, than the petrol and diesel bands put together. Hybrid company cars, whether plug-in or self-charging, are treated as petrol or diesel for AFR purposes — not electric — and that single distinction catches out payroll teams often enough that it's worth stating plainly here rather than assuming everyone already knows it.
Tax-Free Mileage Reimbursement — the Actual Mechanics
Here's where the AFR system earns its keep for a business running a company car fleet. When an employee drives their company car on business and the employer reimburses fuel at or below the relevant advisory rate, HMRC accepts that payment as covering fuel cost only, with no additional taxable benefit and no Class 1A NIC charge landing on the employer. Pay 14p a mile to a driver in a 1.8-litre petrol company car doing genuine business trips, and that's the end of the story for that mileage — no P11D entry, no benefit-in-kind calculation, nothing left for the accountant to unpick at year end. This is precisely why AFRs matter more to a bookkeeper than to a driver: get the figure right at the point of payment and an entire category of BIK exposure simply never arises in the first place.
The same logic runs in reverse for private fuel. Where an employer pays for all fuel — including private mileage — and the employee reimburses the business at the advisory rate for private miles driven, HMRC treats that repayment as removing the fuel benefit charge that would otherwise apply. Given that the fuel benefit charge for 2026/27 is calculated against a multiplier north of £28,000, applied at the car's CO2-based BIK percentage, a driver in even a modest company car can be looking at several hundred pounds of avoidable tax simply by paying back private fuel at the advisory rate each quarter. Set up a standing reimbursement through whatever expenses software the business already runs, and this becomes a five-minute administrative task rather than an unpleasant surprise at the annual review.
Pay Above the Rate Without Evidence and HMRC Will Ask Questions
HMRC's default position on anything paid above the advisory rate is blunt: it's salary, not fuel reimbursement.
Nothing stops an employer paying more than the AFR, and plenty do, particularly where actual fuel costs in a specific role — heavy motorway mileage, a thirsty older vehicle, a driver based somewhere fuel genuinely costs more — run higher than the flat rate suggests. The catch is that anything paid above the advisory figure is treated as taxable unless the employer can demonstrate that actual business travel costs were genuinely higher, supported by receipts, mileage logs and fuel card data that tie together into a coherent record. Without that evidence, the excess becomes additional salary through PAYE, liable for Class 1 NIC on both employer and employee — a considerably worse outcome than simply using the published rate to begin with. Don't try to bridge a genuine cost gap by quietly rounding the advisory rate up "to be on the safe side." Either use the published figure, which needs no justification at all, or build a properly documented case for a higher company-specific rate and keep the paperwork ready in case HMRC opens an employer compliance check.
What Actually Needs to Be on File
HMRC doesn't mandate a specific format for mileage records, but it does expect enough detail to reconstruct a claim if asked. In practice that means, at minimum:
- Date of each business journey and its stated purpose
- Start and end points, or total miles for a round trip
- The fuel type and engine size band the vehicle falls into
- The rate applied and the total amount reimbursed
- Evidence that private fuel reimbursements were actually collected, not just notionally due, where that forms part of the arrangement — and this last point is the one HMRC compliance checks catch out most often
A shared spreadsheet still works fine for a five-car fleet. Most payroll bureaux running twenty or more company cars, though, have long since moved to app-based mileage capture — Webexpenses and Concur both push AFR updates through automatically, which removes the single most common failure point: someone in finance simply forgetting to update the rate when the quarter turns over.
Electric Company Cars Are Where This Gets Genuinely Interesting
Company car take-up of electric vehicles keeps climbing, driven largely by the 2026/27 benefit-in-kind rate structure that still rewards zero-emission cars heavily compared with anything running on fuel. But the AER sits in an odd position relative to that trend. At 8p a mile it's meaningfully below the lowest petrol band, which tracks with electricity being cheaper per mile than petrol on average — except for drivers who charge mostly at public rapid chargers rather than at home, where the real cost per mile can run close to double the AER once network fees and subscription costs are added in. HMRC's own guidance acknowledges this gap and allows employers to reimburse the actual cost of business charging where records support it, rather than being locked to the flat 8p rate regardless of circumstance. Very few payroll systems are actually configured to handle mixed home-and-public charging reimbursement correctly, though, and most simply default to the AER no matter where the electricity was drawn from.
For a growing electric fleet, that gap is worth fixing rather than quietly ignoring.
Before the Next Quarterly Review
The next AFR update lands on 1 December 2026, and the pattern by now is familiar: HMRC will publish the new figures on GOV.UK with almost no lead time, expenses software will need manual or automatic updating depending on the package, and any driver still being reimbursed at the September rate once the new quarter starts is technically over- or under-compensated depending on which way the figures move. Set a recurring calendar reminder for the first week of March, June, September and December, check the published table against whatever system runs expenses, and update it the same day rather than leaving it until month end. For a mixed fleet of petrol, diesel and electric company cars, it's worth asking the payroll provider directly whether AER updates happen automatically — several mid-tier packages still require someone to key the new electric rate in by hand, and that's exactly the sort of quiet administrative gap that turns into an unwelcome P11D adjustment eighteen months down the line.