From today (01 December) the cost of fuel looks set to rise.

Despite a drop in the rate of VAT to 15% today, fuel duty has been increased by 2p a litre.

However, the Approved Mileage Allowance Payments system (AMAPs) remains unchanged at 40p per mile. AMAPs allow business users to claim back business mileage in their private cars.

Edmund King, AA president said: “The Chancellor is giving with one hand and taking away with the other. Increasing fuel duty while reducing VAT shows that the Chancellor is playing roulette with global fuel prices. And could lose his gamble. If the global price of oil increases this hike may come back to haunt the government. And when VAT reverts to 17.5% the motorist will be hit at the pumps once again.”

According to the AA, the 2.5% cut in VAT will save 1.72p on a litre of unleaded at the pump.

The price of petrol pre 01 December was 92.88: 50.35 fuel duty and 13.83 VAT at 17.5%.

At 15%, that would be 50.35 fuel duty and 12.11 VAT. The difference is 1.72 ppl. However, when fuel duty increases by 2p per litre then the saving on VAT will be lost and the Chancellor gains 0.5 pence per litre.

Despite this, the government has decided that the business mileage rates should remain static. These are 40p for the first 10,000 miles; and 25p per mile above that. Business mileage rates are tax-free.

In a just-published HM Revenue and Customs review of mileage allowance payments, the HMRC concluded:

“The structure of AMAPs should not at this time be revised to reflect CO2 emissions as employers are happy with the current system and like its simplicity.”

Further information

• Go to our Law & Tax section from more on AMAPs
• Go to our Advice Centre for What are the approved mileage rates for running private cars on business?
• For the recent HM Revenue and Customs report go here
• Go the Editor’s Blog for more on business mileage rates

From 01 December fuel duty rise negates VAT decrease