What HMRC Advisory Fuel Rate Changes From June 1 Mean for Company Car Drivers

HMRC is increasing its advisory fuel rates for company car drivers from 1 June 2026, with some of the largest rises seen across petrol and diesel categories in recent years. The new rates affect how employers reimburse staff for business travel in employer-provided vehicles and how employees repay the cost of private mileage driven in company cars. Understanding which rates apply to your vehicle and how the changes work in practice can make a meaningful difference to expenses claims and tax calculations for a significant number of UK drivers.

HMRC reviews advisory fuel rates quarterly, and this set of increases reflects a sustained period of elevated pump prices. The changes apply specifically to drivers of company-provided vehicles, making them distinct from the approved mileage allowance rate that applies to people using their own cars for business. Both sets of rates are changing in 2026, but for different groups of drivers and through different mechanisms.

What Are HMRC Advisory Fuel Rates

Advisory fuel rates, known formally as AFRs, are the rates HMRC publishes each quarter to help employers and employees calculate the fuel element of expenses involving company cars. They are called advisory because they represent HMRC’s view of the average cost per mile of fuel for vehicles in each engine size and fuel type category. While they are not legally mandatory, using the HMRC advisory rates provides a safe harbour: if an employer reimburses business mileage at or below the advisory rate, there is no tax or National Insurance to pay on the reimbursement.

The rates cover two main scenarios. The first is where an employer provides a company car and the employee pays for their own fuel, including fuel for private use, and is then reimbursed by the employer for the business proportion. The second is where the employer pays for all fuel, including private mileage, and the employee needs to repay the company for the private element. In both cases, the advisory fuel rate is used as the per-mile figure for calculating how much changes hands.

It is important to note that advisory fuel rates are specifically for company cars, meaning vehicles provided by an employer as part of a remuneration package or company vehicle scheme. They do not apply to employees using their own private vehicles for business travel. That separate group of drivers uses the approved mileage allowance payment rate, which increased from 45p to 55p per mile earlier this month.

The Full List of New Rates From June 1

The new advisory fuel rates take effect on 1 June 2026. Petrol engine rates see the most significant increases. For petrol cars with an engine up to 1,400cc, the rate moves from 12p per mile to 14p per mile. For petrol cars with engines between 1,401cc and 2,000cc, the rate increases from 14p per mile to 17p per mile. For petrol cars with engines above 2,000cc, the rate rises from 22p per mile to 26p per mile.

Diesel rates also increase across all three engine size categories. For diesel cars up to 1,600cc, the rate moves from 12p per mile to 15p per mile. For diesel cars with engines between 1,601cc and 2,000cc, the rate rises from 13p per mile to 17p per mile. For diesel cars with engines above 2,000cc, the rate increases from 18p per mile to 23p per mile.

The increases represent a notable adjustment across all categories, particularly for larger-engined vehicles. A driver of a high-capacity petrol company car will see the advisory rate rise by 4p per mile, which across 10,000 business miles a year amounts to an additional £400 in reimbursable expenses. For diesel drivers in the largest engine category, the 5p per mile increase represents £500 over the same mileage. These are not trivial figures, and updating expense systems to reflect the new rates from 1 June is important for both employers and employees.

Why the Rates Are Rising Now

HMRC sets advisory fuel rates based on published pump prices and the average fuel consumption of vehicles in each category. The quarterly review process is designed to keep the rates broadly in line with what drivers are actually spending at the pump. When fuel prices rise significantly, the advisory rates are adjusted upward so that reimbursement keeps pace with actual costs. When prices fall, the rates can be reduced, though they tend to be adjusted less aggressively downward than they move upward.

The June 2026 increases reflect the sustained level of petrol and diesel prices in the UK market. Fuel costs remain significantly higher than they were several years ago, and the gap between older advisory rates and actual pump prices has widened to a point where HMRC determined a material adjustment was necessary. For company car drivers who have been receiving reimbursement at the previous rates, the increase means their expenses will now cover a larger proportion of their actual fuel spending on business journeys.

Employers who have been using the advisory rates as the basis for expense calculations should update their systems promptly. Continuing to pay at the old rates after 1 June does not expose an employer to additional tax liability, since the advisory rates represent a ceiling rather than a floor, but it does mean employees may be receiving less than they are entitled to under HMRC’s current view of fuel costs.

How Advisory Rates Are Used in Practice

In a typical company car arrangement, the employee records the number of business miles driven in a given period and submits an expenses claim to their employer. The employer uses the advisory fuel rate for the vehicle’s engine size and fuel type to calculate the reimbursable amount. The resulting payment is made without tax or National Insurance deductions, provided the rate used does not exceed the HMRC advisory figure.

Where an employer provides fuel for private as well as business travel, the employee must repay the private element. In this case, the advisory rate is used to calculate the value of the private fuel, and the employee pays that amount back to the employer. This repayment prevents the private fuel from being treated as a taxable benefit in kind, which would otherwise result in a significant tax charge under the fuel benefit rules. The fuel benefit charge for private fuel in a company car can be substantial, sometimes running to several thousand pounds per year depending on the car’s emissions rating, so accurately tracking and repaying private mileage at the advisory rate is financially important.

For drivers of hybrid company cars, the appropriate advisory rate depends on whether the car is fuelled predominantly with petrol or diesel. Most plug-in hybrids that are not primarily driven on electric power would use the petrol advisory rate for their engine size. Company car drivers uncertain about which rate applies to their specific vehicle should check with their fleet manager or HR department.

Electric Vehicles and the Advisory Electricity Rate

HMRC also publishes an advisory electricity rate (AER) for fully electric company cars. Unlike the petrol and diesel rates, which vary by engine size, there is a single advisory electricity rate that applies to all electric vehicles. The current rate for home charging is 7p per mile, calculated using an assumed electricity cost of 26.9p per kilowatt-hour. The rate for public charging sits at 15p per mile, calculated using data from Zapmap that puts the average public charging cost at around 54p per kilowatt-hour.

The home charging rate of 7p per mile remains unchanged in the June 2026 update, while the public charging rate has been added to the advisory framework to reflect the growing proportion of company car drivers who charge primarily at public points rather than at home. The significant difference between the home rate and the public rate reflects the real-world cost disparity between the two charging environments, and for drivers who rely heavily on public infrastructure, the 15p rate provides a more realistic basis for expenses than the home charging figure.

Electric company car drivers should be aware that the advisory electricity rate can only be used for reimbursement of home or public charging costs when there is clear evidence of the charge being for business travel. The same record-keeping principles apply as with petrol and diesel: accurate mileage logs that distinguish business from private travel are necessary to support any expense claim.

How These Rates Differ From the Approved Mileage Allowance

One of the most common sources of confusion around HMRC’s mileage rates is the difference between advisory fuel rates and approved mileage allowance payments. They are designed for different situations and should not be used interchangeably. Advisory fuel rates apply only where an employer provides a company car. Approved mileage allowance payments apply where an employee uses their own private vehicle for business travel.

If you drive a company car, your employer should use the advisory fuel rate to reimburse you for business mileage. If you drive your own car for work purposes, the approved mileage allowance of 55p per mile for the first 10,000 miles is the relevant figure following the Chancellor’s announcement earlier this month. Using the wrong rate for the wrong situation can result in either over-payment, which creates a tax liability, or under-payment, which means the driver is not fully compensated for their costs.

For fleet managers and HR teams responsible for setting up or reviewing expenses policies, the June 2026 advisory rate changes are a prompt to check that all company car drivers are being reimbursed at the correct rate for their specific vehicle and fuel type, and to confirm that the policies governing private mileage repayment are up to date. Getting this right protects both the employer, from potential PAYE and National Insurance exposure, and the employee, from underpaid expenses or unexpected tax liabilities.

Both sets of HMRC mileage rates sit within the broader regulatory environment for UK drivers, which continues to evolve. For a comprehensive overview of the changes ahead, our guide to the biggest shake-up of UK driving laws in years sets out what drivers can expect in the period ahead.