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HMRC internal manual

Employment Income Manual

Dispensations: reimbursement of expenses and advisory fuel rates

The guidance on this page applies for the tax years up to and including 2015-16.  For tax years 2016-17 onwards dispensations have been replaced by an exemption for amounts which would otherwise be deductible. See EIM30200 onwards.

Payments that are calculated in accordance with a scale intended to do no more than reimburse the expenses incurred by employees can be regarded as equivalent to reimbursement. No set figures can be provided as circumstances can vary widely. Rates applicable in the Civil Service should not be quoted as suggesting the norm. For example, the standard of the hotel an employee is expected to use can vary with the nature of the business, his grade and the person or business being visited, and so on.

Advisory fuel rates and dispensations

HMRC publishes advisory fuel rates (AFRs) as a guideline for fuel only mileage rates for company cars, depending on engine size and fuel type (see EIM25655). AFRs are not binding but if an employer pays less than or equal to the AFR we accept that there is no tax or NICs liability and that these rates may be included in a dispensation. Indeed, for the sake of consistency, if employers agree, we believe that in many circumstances these rates should be those included in a dispensation.

AFRs may apply where an employer:

  • reimburses an employee for business travel in their company car, or
  • requires an employee to repay the cost of fuel used for private travel.

If an employer pays fuel only rates in excess of the AFR, unless this can be justified because of unusually high mileage costs (e.g. 4x4 vehicles over rough terrain), the rate will include an element of taxable profit and be treated as earnings for NICs purposes. Consequently rates above the AFR should not normally be included in a dispensation.