Mercedes Mullins
If you use your own vehicle for work, you may be able to claim tax relief on your fuel expenses. This could be in the form of a standard mileage rate, which covers the cost of fuel and wear and tear on your vehicle, or you could claim the actual expenses, which requires keeping records of every single journey made. In the UK, HMRC sets Approved Mileage Allowance Payments (AMAP) rates, which currently stand at 45p for the first 10,000 miles and 25p thereafter. If you are driving a company car, you can reclaim the VAT on fuel, but you must account for any personal use of the vehicle, which is deemed a 'benefit in kind' and may result in additional taxes for both the company and the employee.
Can I claim fuel expenses on a company car?
| Characteristics | Values |
|---|---|
| Who can claim fuel expenses? | Employees, Small business owners, Company owners, Self-employed individuals |
| Vehicle ownership | Personal, Company-owned, Leased, Financed |
| Fuel expenses claim | Allowed, Requires detailed logs of business journeys, Can be claimed for up to 5,000 work-related kilometres per car |
| Mileage claim | Allowed, Requires mileage logs, Can be paid at up to 45p per mile (plus 5p with a passenger) |
| VAT | Can be reclaimed on fuel for company cars |
| Tax implications | Yes, for both employer and employee if the company car is used for personal use |
| Fuel Benefit Charge | Applicable if the company pays for all fuel (business and personal) |
| Advisory Fuel Rate (AFR) | Set by HMRC, Can be used to streamline VAT recovery and avoid Fuel Benefit Charge |
| Fuel allowance | Can be provided by employers for employees using personal vehicles for work-related travel |
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What You'll Learn
Personal vehicle for work vs company car
When it comes to using a vehicle for work-related travel, there are two main options: using a personal vehicle or using a company car. Each option has its own advantages and tax implications that should be considered.
Using a personal vehicle for work-related travel involves claiming mileage instead of fuel costs. This means that the individual pays for the fuel with their own money and is then reimbursed by the company for the business mileage accrued. In the UK, HMRC sets Approved Mileage Allowance Payments (AMAP) rates, which currently stand at 45p for the first 10,000 miles and 25p thereafter. It's important to note that claiming mileage covers all vehicle expenses, including insurance, tax, fuel, servicing, and maintenance. Additionally, it is crucial to maintain a detailed log of all business journeys to validate these claims.
On the other hand, if an individual is driving a company car, the business can claim all expenses related to that vehicle, including fuel, repairs, road tax, and insurance. However, if there is any personal use of the company car, it will likely be deemed a 'benefit in kind', resulting in additional tax implications for both the company and the employee. Company car drivers can opt for the mileage claim method, where they can reclaim VAT on the fuel element of the claim. This involves using the Advisory Fuel Rate (AFR) set by HMRC to calculate the amount of fuel used and then applying the appropriate VAT fraction.
It's worth noting that the choice between claiming mileage and reclaiming VAT on fuel costs depends on several factors, including the nature of the car and the owner's preference for record-keeping. For example, some business owners may prefer the simplicity of using a fuel card, which provides a clear record of fuel expenses, even though it requires distinguishing between personal and business use to prevent unwanted tax bills.
In terms of tax consequences, electric vehicles or commercial vehicles like vans often have less severe tax implications compared to traditional petrol or diesel cars. Additionally, when using a personal vehicle for business purposes, the money paid to the director or employee is typically tax-free, providing another incentive to use a personal vehicle for work-related travel.
Overall, both options have their advantages and considerations. By understanding the tax implications and reimbursement processes associated with each, individuals and businesses can make informed decisions that optimize tax efficiency and comply with relevant regulations.
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Reclaiming VAT on fuel
If you have a company car, you can reclaim VAT on fuel, but you must account for any personal use of the vehicle, which is deemed a 'benefit in kind'. This means that both the employer and employee may face tax implications.
If the company pays for all fuel (both business and personal), the tax efficiency can quickly erode due to the 'Fuel Benefit Charge'. One way to avoid this is to use a fuel card, which provides a clear record of fuel expenses. However, this requires the business owner to meticulously distinguish between personal and business use, and reimburse the company accordingly.
Alternatively, the business owner can pay for all their fuel personally and then claim back the business mileage at the Advisory Fuel Rate (AFR) set by HMRC. This can streamline the VAT recovery process and remove the risk of the Fuel Benefit Charge. This rate is purely for fuel and doesn't include other vehicle costs.
If you are using the mileage claim method, you can reclaim VAT on the fuel element of the claim. You would use the AFR to calculate the amount of fuel used and then apply the appropriate VAT fraction.
If you use a vehicle for both business and personal use, you can reclaim all the VAT and pay the right fuel scale charge for your vehicle. Or you can reclaim only the VAT on fuel used for business trips, but you must keep detailed mileage records. You might choose not to reclaim any VAT if your business mileage is so low that the fuel scale charge would be higher than the VAT you can reclaim.
If you use a vehicle that you own personally for business purposes, you can claim mileage instead of fuel costs. This means you pay for the fuel personally and are reimbursed for business mileage. In the UK, HMRC sets Approved Mileage Allowance Payments (AMAP) rates, which currently (2023) stand at 45p for the first 10,000 miles and 25p thereafter. Mileage claims cover all vehicle expenses, including insurance, tax, fuel, servicing, and maintenance.
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Fuel Benefit Charge
If your employer pays for your company car and you use it full-time, you will have to pay the company car fuel benefit. The fuel benefit charge is normally the only tax charge for the provision of fuel for private use by an employee (or members of their family or household) in a 'company vehicle'. This means that the cost of fuel for private motoring reimbursed to the employee or paid on their behalf by the employer will not produce a tax liability in addition to the fuel benefit charge.
The fuel benefit charge is calculated by multiplying the fuel benefit charge multiplier by the car's appropriate percentage—the CO2 emissions-derived percentage used to calculate the car benefit charge, including any diesel supplement. The car fuel benefit charge multiplier can change each year and the rate is controlled by HMRC. For the 2023/2024 tax year, the car fuel benefit charge multiplier was £27,800. If your BIK (benefit-in-kind) percentage was 25%, as your petrol vehicle falls into the 105-109 CO2 bracket, then you’d multiply 0.25 (25%) by 27,800 to reach £6,950.
If you don't spend much on fuel, you'd be paying more with this benefit. If you are an employer and pay for your fleet's fuel during personal time, you will have to contribute a significant amount of National Insurance. This is because you are giving out a taxable company benefit. It is worth researching the typical amount you would have to pay before agreeing to a company car with car fuel benefit fees attached.
If you don't want to deal with the intricacies of logging every journey, you can choose to pay for all your fuel personally and then claim back the business mileage at the Advisory Fuel Rate (AFR) set by HMRC. This rate is purely for fuel and doesn’t include other vehicle costs. Using AFRs to claim can streamline the VAT recovery process and remove the risk of the Fuel Benefit Charge.
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Mileage claims
To make a mileage claim, employees must keep a detailed log of all business journeys, including the date, mileage, and reason for travel. This can be done through a simple spreadsheet or by using one of the many available mileage-tracking apps. It is crucial to distinguish between personal and business use, as personal use may be deemed a 'benefit in kind' and result in additional tax implications for both the employer and employee.
For company-owned vehicles, the business can claim all expenses related to the vehicle, including fuel, repairs, road tax, and insurance. However, if there is any personal use of the vehicle, it may be considered a 'benefit in kind', triggering extra tax. In this case, the business can choose to pay for all fuel and have employees reimburse the company for personal use, or they can allow employees to pay for all their fuel and claim back the business mileage at the Advisory Fuel Rate (AFR) set by HMRC.
In some countries, there are specific rates and methods for calculating mileage claims. For example, in Australia, there is a standard mileage rate for the cost of operating a car for business, and the Australian Taxation Office provides guidelines for claiming expenses for cars owned or leased by individuals. Additionally, there may be different methods for calculating deductions for multiple cars or for hybrid and electric vehicles.
It is important to note that tax legislation is dynamic, and guidelines can change over time. Therefore, it is always advisable to consult with an accountant or refer to the relevant government websites for the most up-to-date information on mileage claims and tax implications.
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Tax implications
The tax implications of claiming fuel expenses for a company car vary depending on several factors, including the country, the type of vehicle, and the nature of its use. Here is a detailed overview of the tax implications:
UK
In the UK, the tax implications differ depending on whether the vehicle is personal or company-owned. If you use your personal vehicle for work-related travel, you can claim mileage instead of fuel costs. This means you pay for the fuel yourself and are then reimbursed for business mileage based on the miles travelled for business purposes. The HMRC-approved mileage allowance payment (AMAP) rates in the UK currently stand at 45p for the first 10,000 miles and 25p thereafter. It is important to note that claiming mileage covers all vehicle expenses, including fuel, insurance, tax, servicing, and maintenance.
For company cars, the scenario is different. If the company reimburses fuel costs for business travel, the business owners or employees can reclaim VAT on fuel. However, any personal use of the company car is deemed a 'benefit in kind', resulting in tax implications for both the employer and the employee. To avoid additional tax bills, it is crucial to meticulously distinguish between personal and business use, keeping records of every journey to substantiate claims.
Australia
In Australia, you can claim fuel and oil expenses for work-related trips. If your car is electric, you can claim electricity expenses from commercial charging stations or use the electric vehicle (EV) home charging rate to estimate your home charging expenses based on odometer readings. For hybrid vehicles, you must keep evidence of electricity costs and odometer readings. It is important to note that you cannot claim commercial charging station costs separately if you use the EV home charging rate. Additionally, you can claim up to 5,000 work-related kilometres per car, with separate methods available for multiple cars or different income years.
India
In India, employers may provide a fuel allowance as a component of flexible benefits for employees who use their personal vehicles for work-related travel. This allowance is subject to certain tax exemptions under Section 10, with a maximum limit set by the government. For employees with a taxable income, a portion of their monthly salary becomes non-taxable if the employer offers a fuel allowance.
United States
In the United States, there are various considerations for claiming car expenses. The Internal Revenue Service (IRS) provides guidelines for different scenarios, such as standard mileage rates, depreciation methods, and deductions for specific professions. It is important to refer to the relevant IRS publications and forms for detailed information on the tax implications of claiming fuel expenses for company cars in the US.
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Frequently asked questions
If you have a company car, you can claim the VAT on fuel, but you must account for any personal use of the vehicle, which is deemed a 'benefit in kind'. This means both the employer and employee may face tax implications.
If your company pays for all fuel, you can use a fuel card to keep a clear record of fuel expenses. Alternatively, you can pay for all your fuel personally and then claim back the business mileage at the Advisory Fuel Rate (AFR) set by HMRC.
You can use a simple spreadsheet or a mileage app to track your journeys. Note the date, mileage and reason for travel of each journey.
