Business travel in company cars

The advisory rates for employers who reimburse employees for fuel costs for business travel in a company car have been increased. The new HM Revenue & Customs (HMRC) rates, which apply to journeys from 1 July 2006, follow a steep rise in the prices of petrol and diesel.

HMRC will always accept that there is no liability to tax or national insurance where employers pay business mileage at not more than the July rates.

However, if the employer pays a lower mileage rate, employees cannot claim tax relief for the difference. This contrasts with the rule for business mileage in an employee's own car, where the employee can claim tax relief based on the official mileage rates of 40p for the first 10,000 miles and 25p thereafter, even where the employer pays less than this.

The guideline rates are not binding and employers, may in some cases, be able to reimburse at a higher rate if they can demonstrate that the actual cost of business travel in the cars concerned is higher.

Where employers provide all the fuel for company cars, employees are liable to tax on a fixed sum based on the car's emissions, unless they repay the cost of all fuel used for private travel. The same advisory rates should be used to calculate the reimbursement.