Fuel Reimbursement. Is it best to use flat rates or the actual cost of fuel?
A huge number of variables affect fuel consumption, making it extremely rare for drivers to obtain exactly the same mpg, even from identical cars. So is it wise to set flat pence-per-mile rates for fuel expenses?
Flat Rates are easy to work with. Most fleets that use them apply the Advisory Fuel Rates (AFRs) published by HMRC. Flat Rates don’t require you to capture fuel information (apart from receipts for reclaiming VAT if you don’t use fuel cards). But this is also the main drawback of fixed rates – they encourage companies to try to make do with only half the information they need to manage fuel costs properly.
Actual Cost is always fairer to drivers than flat rates. Companies that use Actual Cost usually spend less on fuel in the long run, too. That’s because Actual Cost requires a complete suite of fuel and mileage information in order to calculate expenses. This in-depth knowledge allows you to seek out cost
saving opportunities that aren’t easily achieved via Flat Rates – such as enhanced VAT recovery and improvements to vehicle policy.
There’s no right or wrong answer. Actual Cost is generally preferable but both Actual Cost and Flat Rate solutions will perform efficiently when outsourced and run on a dedicated mileage capture platform.