Confused about advisory fuel rates

[hollythedog]

I am starting a new job shortly. I get a car allowance which I get taxed through PAYE. This pays for the work share/usage of a car of my choice, within reason, and running costs. The allowance is inline with a trainee position. It’s a great opportunity.

I want to use my current petrol vehicle which has remaining finance. It does approximately 25mpg and 22ppm.

After finance payments, insurance, tax, and a few quid put away for consumables with Audi S tax, that element work out. Employer will pay the advisory fuel rate of 15ppm. Leaving me 7p out of pocket for every mile.

I had a quick call to the HMRC today which due to a 40 minute wait, a poor line and an impending meeting had to be cut short. They confirmed that the employer contribution per mile is fine, but that I could offset the difference of the 15ppm and 45ppm back against what I pay in tax. I can also do this in advance if I give them an estimated mileage for the year. They advised to under estimate.

Can anyone with the knowledge break it down for me in the simplest terms. After the probation period is over I will look at a replacement car that sits within the fuel rate allowance.I will start a new thread for that!

Cheers.

[RammyMP]

If you get 15p a mile you can claim the tax back on 30p a mile so if you are on the lower tax rate you get an additional 6p a mile so 21p in total. You need to fill a form out and send it to the tax man at the end of the tax year.

[Sheepshanks]

For the first 10K per year of business miles you can claim a refund of the tax on the difference between the 15p you get paid and the 45p HMRC allow.

So if you're a 20% tax payer, you get 20% of 30p = 6p.

Over 10K per year, HMRCs rate drops to 25p.

[hollythedog]

Great. So that just gets me to the 22p my car consumes on VPower! To be fair, on longer runs it will most likely reduce to the 21p!

[Countdown]

hollythedog said:

I want to use my current petrol vehicle which has remaining finance. It does approximately 25mpg and 22ppm.

After finance payments, insurance, tax, and a few quid put away for consumables with Audi S tax, that element work out. Employer will pay the advisory fuel rate of 15ppm. Leaving me 7p out of pocket for every mile.

So if your employer is paying 15ppm and you can reclaim 6ppm that’s pretty much close enough to your 22ppm actual cost...yes?

[55palfers]

I ran a car on HMRC rates for years.

You'd have the car anyway so most of the purchase costs don't need to be factored in. Just notional depreciation, servicing and tyres I reckon.

At the close, before retirement, I was running a 5.0 V8 and breaking even.

[hollythedog]

Countdown said:

So if your employer is paying 15ppm and you can reclaim 6ppm that’s pretty much close enough to your 22ppm actual cost...yes?

Looks that way. However I understand that it offsets against the following years tax code. It’s relief on income tax, not physical money back.

[Countdown]

55palfers said:

I ran a car on HMRC rates for years.

You'd have the car anyway so most of the purchase costs don't need to be factored in. Just notional depreciation, servicing and tyres I reckon.

At the close, before retirement, I was running a 5.0 V8 and breaking even.

I was making a fair amount of profit when I was running a Nissan Sunny 1.3DX

I remember a Senior Manager asking me what car I drove. When I told him he said that was a good choice. I was quite pleased that he realised I had great taste in cars until he said "you won't mind when it gets trashed on some of the Council Estates you'll be visiting"!

[hollythedog]

BenjiS said:

You can elect for either. If you do the same business mileage every ear, then it makes sense to have your tax code adjusted with the relief.

If, like me, your mileage is highly variable, it makes sense to do a claim once a year, and in this case you get the actual cash back.

Mine will be variable. So what exactly do you claim on to get the cash back? And on what amount? The full difference of 30ppm between the 15p/45p?

[hollythedog]

Thank you for the above, this could really work. Should be about managing the finances correctly. However this would work even if I switched to a more economical car.

As I am in a (relatively) low tax band (£28k gross) would I expect the 20% rebate on the 30ppm (45ppm vs. 15ppm claimed)?

[hollythedog]

They pay the 15ppm. I just need an extra 1cc per cylinder! I knew I should have gone for the R32 instead of the S3!