HMRC advisory fuel rates from September 2026: company cars explained

The 55p mileage rate gets the headlines. It is also the wrong number for anyone driving a company car. If the business owns or leases the car, the miles are paid at HMRC's advisory fuel rates: a fuel-only rate per mile that changes every quarter and, depending on the engine, can be less than a third of 55p.

Get it right and nobody pays tax on the mileage. Get it wrong, and a few pence a mile can turn into a taxable fuel benefit worth thousands. Here are the current rates, what they are for, and a VAT reclaim that is easy to miss.

The rates from 1 September 2026

HMRC reviews advisory fuel rates on 1 March, 1 June, 1 September and 1 December. These apply from 1 September 2026:

Against the June quarter, large petrol cars went up a penny, the two larger diesel bands and large LPG cars came down a penny, and electric stayed put. Two details catch people out: diesel bands break at 1600cc, not 1400cc, and hybrids have no rate of their own. HMRC treats a hybrid as a petrol or diesel car.

Who the rates are for

Advisory fuel rates only apply to employees using a company car, and only in two situations: the employer reimbursing business travel, or the employee paying back fuel used privately. GOV.UK is unusually blunt about it: "You must not use these rates in any other circumstances."

If you drive your own car, van or motorbike for work, as an employee or a sole trader, the approved mileage rates apply instead. Those are covered in HMRC mileage rates explained (2026/27).

The difference is what each rate is meant to pay for. The 55p rate covers the whole cost of owning and running a car. In a company car the business already pays for the car, its insurance and its repairs, so the employee is only out of pocket for fuel.

Paying staff for business miles

If you pay no more than the advisory rate for the car's engine size and fuel, there is no taxable profit and no Class 1A National Insurance. An employee in a 1,800cc petrol company car who drives 600 business miles in October can be paid 600 × 17p, or £102, with nothing to report.

You can pay more if the car genuinely costs more to run than the guideline, but you need to be able to show it. If you pay above the rate without that evidence, and only for business travel, the excess is taxed as earnings and is subject to Class 1 National Insurance.

Mileage payments that cover journeys between home and work are a different matter. Commuting is private travel, and paying fuel for it brings in the car fuel benefit charge.

Getting private fuel paid back

This is where advisory fuel rates earn their keep. If the business pays for all the fuel, including private miles, the employee faces a car fuel benefit charge. For 2026/27 it is the car's appropriate percentage multiplied by £29,200.

Take a petrol car emitting 120g/km, which is 30% for 2026/27. The taxable benefit is £29,200 × 30%, or £8,760, whatever the private mileage. A basic-rate taxpayer pays £1,752 in tax on it, and the employer pays Class 1A National Insurance on top.

The charge disappears if the employee makes good the cost of all the private fuel. Record every private mile, repay at the advisory rate or higher, and HMRC accepts there is no benefit. In a 1,800cc petrol car, 3,000 private miles at 17p is £510. Repaying £510 to avoid tax on £8,760 is not a difficult decision.

Electric company cars

Fully electric cars have two rates: 7p a mile for home charging and 15p for public charging. Where a car is charged in both places, HMRC lets you apportion the mileage by how much charging happens at each, as long as the split is fair and reasonable. If the public chargers you use cost more per mile than 15p, you can pay a higher rate as long as you can show it.

There is no fuel benefit to worry about here either: you do not have to pay or report anything on charging an employee's fully electric car if you own or hire it.

VAT on mileage: the fuel element

If you are VAT-registered, mileage payments hide some reclaimable VAT. VAT Notice 700/64 lets you treat the fuel part of a mileage allowance as containing VAT, and HMRC accepts the advisory fuel rates for working out what that fuel part is. This applies to mileage paid on an employee's own car too, even though the advisory rates cannot be used to pay that employee tax-free. Different taxes, different rules; it was never going to be simple.

Say an employee drives 1,000 business miles in their own 1,600cc petrol car and you pay them the full 55p. The fuel element is 1,000 × 17p, or £170. At 20% the VAT fraction is one-sixth, so you can reclaim £28.33.

Two conditions make or break it:

• Fuel receipts. You must keep VAT invoices for fuel covering at least the fuel element claimed, unless the fuel was bought on a card the business provided. A receipt dated after the period of the claim cannot support it, so ask staff to keep every fuel receipt, not just a token one. What counts as a valid VAT receipt covers what each one needs to show.
• Mileage records. For each employee, the records must show the miles travelled, whether journeys were business or private, the engine size, the mileage rate and the VAT claimed. The allowance has to be based on miles actually driven.

Electric cars work differently. If an employee charges at a public charger, the supply is to the employer, which can reclaim the VAT subject to the normal rules. If they charge at home, the electricity is supplied to the employee, and the employer cannot reclaim the VAT at all.

If you drive the company car

Employees whose employer pays less than the business fuel actually cost, or nothing at all, can claim tax relief on the difference. In a company car the relief is on what the fuel really cost, not on a rate per mile, so keep the fuel receipts as well as the log.

The log is the same one HMRC asks for on any vehicle claim: the reason for each journey, and the start and end postcodes. You can claim for the current tax year and the four before it. Keeping the paperwork long enough is covered in how long to keep receipts for HMRC.

How ClaimSnappy handles company-car mileage

In ClaimSnappy you set up a company car once: its fuel and engine size, or for an electric car, where you charge it. Journeys in it are then priced at the advisory fuel rate for the date of the trip, not at 55p. There is no 10,000-mile band, because advisory rates do not have one, and no Mileage Allowance Relief worked out behind it.

Every journey still keeps the full log: date, reason, miles and vehicle, plus start and end postcodes, and a journey missing a postcode is flagged before it goes on a P87. If a fuel receipt and mileage land on the same day, the app asks whether both are right before the claim goes, because paying for the fuel and paying a fuel rate for the same miles is usually paying twice.

For a P87, company-car journeys are kept out of the mileage boxes, and the P87 evidence notes tell you to send the fuel receipts and the log instead, since that relief rests on what the fuel actually cost.

The app turns the month's journeys into a claim for you to check and send, and you can download it as a PDF and CSV with its receipt files. If your bookkeeper links up through ClaimSnappy's free accountant portal, they can export your records as import files for Xero, QuickBooks Online or Sage 50. Mileage goes into those files with no VAT on it, so if you reclaim VAT on the fuel element, your bookkeeper works that out from the receipts. For teams, ClaimSnappy for Business explains how the desk fits together.

ClaimSnappy keeps the records. Which rate your business pays, whether a journey is business, and what HMRC will allow is still for you and your accountant to decide.