Every quarter, HMRC updates the figures that determine how much employees can be reimbursed for using their company car for business travel. The advisory fuel rates December 2025 edition is no exception, bringing revised rates that reflect current fuel prices across petrol, diesel, and electric vehicles. Whether you are an employer managing expense claims or an employee seeking reimbursement, understanding these rates is essential. Getting the figures right protects both parties from unnecessary tax complications and ensures that mileage payments remain fair, accurate, and fully compliant with HMRC guidelines.
What Are Advisory Fuel Rates?
Advisory fuel rates (AFRs) are figures published by HMRC to help employers and employees handle the cost of fuel when a company car is used for business purposes. They are not mandatory, but they provide a widely accepted benchmark for calculating reimbursements. If an employer pays at or below the published rate, no taxable benefit arises. Similarly, if an employee uses their own money to fuel a company car, they can reclaim expenses at these rates without triggering an income tax or National Insurance liability. The rates apply specifically to company cars, not privately owned vehicles.
December 2025 Advisory Fuel Rates: The Updated Figures
The advisory fuel rates December 2025 reflect HMRC’s quarterly review of average UK pump prices. For petrol engine cars, rates are banded by engine size: up to 1400cc, 1401cc to 2000cc, and over 2000cc. Diesel vehicles follow a similar banding structure. Electric company cars continue to be covered by a separate, flat pence-per-mile rate, which has seen gradual increases in recent quarters to better reflect rising electricity costs. Employers should always refer directly to HMRC’s official guidance to confirm the exact figures applicable from the December 2025 update date.
How Are Advisory Fuel Rates Calculated?
HMRC determines advisory fuel rates by analysing data on average UK fuel prices provided by the Department for Energy Security and Net Zero, combined with average fuel consumption figures for different engine sizes. The resulting pence-per-mile figures are designed to reflect the actual cost of fuel per mile driven, not the total running cost of the vehicle. Rates are reviewed every quarter — in March, June, September, and December — and can either increase or decrease depending on how pump prices have moved since the previous review period.
Who Do the December 2025 Rates Apply To?
The December 2025 advisory fuel rates apply to anyone using a company car for business travel during the period they are in effect. This includes employees, directors, and sole traders who have a company car arrangement in place. It is worth noting that these rates do not apply to privately owned vehicles — for those, the approved mileage allowance payment (AMAP) rates apply instead. Businesses that operate large fleets should ensure their payroll and expenses teams are updated promptly whenever new rates are published, as using outdated figures can create discrepancies in tax reporting.
Using Advisory Fuel Rates for VAT Reclaim
One often overlooked application of advisory fuel rates is their role in VAT recovery. When a business reimburses an employee for fuel used in a company car, it may be able to reclaim the VAT element of that reimbursement, provided a valid VAT receipt is held. The December 2025 rates can be used to calculate the maximum VAT-reclaimable amount per mile. HMRC provides a specific formula for this, dividing the advisory rate by the VAT-inclusive fuel cost to establish the fuel portion. Keeping accurate fuel receipts remains essential to support any VAT reclaim made through this method.
Common Mistakes Employers Make with Advisory Fuel Rates
One of the most frequent errors is continuing to use rates from a previous quarter after HMRC has issued an update. Because advisory fuel rates change quarterly, businesses that do not have a process for checking and applying new figures risk either over-reimbursing employees — creating a potential taxable benefit — or under-reimbursing them, which can cause staff dissatisfaction. Another common mistake is applying AFRs to privately owned vehicles instead of the correct AMAP rates. Maintaining a simple internal review process tied to HMRC’s quarterly update schedule helps businesses stay accurate and compliant throughout the year.
FAQs
Q1: When do the advisory fuel rates for December 2025 come into effect?
HMRC typically publishes the December quarterly update in late November or early December, with the new rates taking effect from 1 December 2025. Employers should check HMRC’s official website for the precise implementation date and update their expense systems accordingly before processing December mileage claims.
Q2: Can I use advisory fuel rates for my own car?
No. Advisory fuel rates apply exclusively to company cars. If you use your own privately owned vehicle for business travel, the approved mileage allowance payment (AMAP) rates apply instead, which are set at 45p per mile for the first 10,000 miles and 25p per mile thereafter.
Q3: Are advisory fuel rates compulsory?
Advisory fuel rates are not legally binding. Employers can choose to reimburse at different rates, but if payments exceed the HMRC advisory figures, the excess may be treated as a taxable benefit in kind, potentially triggering income tax and National Insurance liabilities for both employer and employee.
Q4: Do electric vehicles have a separate advisory fuel rate?
Yes. HMRC publishes a separate advisory electricity rate (AER) for fully electric company cars. This rate is expressed in pence per mile and is reviewed alongside the petrol and diesel figures each quarter. For December 2025, employers should check the latest AER on the HMRC website to ensure correct reimbursement for electric vehicle users.
Q5: Where can I find the official December 2025 advisory fuel rates?
The most reliable source is HMRC’s official website at gov.uk, under the section titled “Advisory fuel rates.” This page is updated each quarter and displays both current and historical rates, making it straightforward to verify which figures apply to any given period.
Conclusion
The advisory fuel rates December 2025 update is a routine but important quarterly revision that directly affects how employers reimburse company car drivers for business mileage. Staying current with these figures helps businesses avoid tax complications, ensures fair treatment for employees, and supports accurate VAT reclaim processes. Whether you manage a small team or a large company fleet, building a quarterly check into your expense management process is a simple but effective way to remain compliant. Always refer to HMRC’s official guidance to confirm the exact rates in force for any given period.
