Mercedes Mullins
Company car fuel tax is a tax charged to employees who use company cars and receive free fuel for private use. This tax is considered a taxable advantage by the UK government, which recoups the allowance through the business car fuel benefit. The taxable value of a car is calculated based on various factors, including the car's CO2 emissions, its value when new, and the income tax bracket of the employee. Employers must report this taxable value to HM Revenue and Customs (HMRC). To optimise fuel expenses, fleet managers can use company fuel cards to accurately track mileage and fuel consumption, helping them make informed decisions about claiming expenses and saving on tax obligations.
| Characteristics | Values |
|---|---|
| Who pays the tax | The employee pays the tax for using the fuel paid for by their employer. |
| Taxable value | The taxable value is calculated using commercial payroll software or HMRC's company car and car fuel benefit calculator. |
| Taxable fuel | The cost of fuel for private use 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, unless the amount reimbursed exceeds the cost of that fuel. |
| 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). |
| BIK tax | The benefit in kind (BIK) tax is evaluated by multiplying the car's CO2 emission level, the value of the car when new (including any modifications), and your income tax bracket. |
| Fuel cards | Using a fuel card for business purposes is not classed as a taxable benefit. However, you will be taxed if you use a fuel card to cover the fuel for personal travel. |
| Electric cars | Drivers of electric cars do not have to pay fuel benefit tax. |
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Calculating taxable value
As an employer, if you provide company cars or fuel for your employees' private use, you must calculate the taxable value and report this to HM Revenue and Customs (HMRC). Private use includes employees' journeys between home and work, unless they are travelling to a temporary place of work.
You can calculate the taxable value using commercial payroll software or HMRC's company car and car fuel benefit calculator. To use the calculator, choose the relevant fuel type: 'F' for diesel cars that meet the Euro 6d standard, 'D' for other diesel cars, and 'A' for all other cars. For electric cars and other cars with an approved CO2 emissions figure of 75g/km or less, answer 'no' to the question 'Is the car provided via an optional remuneration arrangement?'.
The taxable value of a car is not the same as its cost. It also depends on the amount of time the car is unavailable during the tax year, for example, because of a mechanical fault. You can work out the value manually on P11D working sheet 2.
The benefit in kind (BIK) tax is calculated by multiplying the car's CO2 emission level, the value of the car when new (including any modifications), and your income tax bracket. This is also known as the fuel benefit charge multiplier. The car fuel benefit charge multiplier can change each year and is controlled by HMRC. For the 2023/2024 tax year, the car fuel benefit charge multiplier is £27,800.
If you are spending under £1390 a year on fuel, the car fuel benefit may not be worth it, as you will still have to pay the calculated amount. This depends on how many miles you are driving. If you are paying more for fuel than the car fuel benefit amount, then having a company car with free fuel is worth it.
You can also use a company fuel card to track mileage and fuel consumption accurately. This can help businesses make informed decisions about whether to claim these expenses, potentially leading to significant tax savings.
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Fuel benefit charge
In the UK, company car fuel tax is calculated based on the benefit-in-kind (BIK) value of the car. The BIK value is determined by the car's carbon dioxide (CO2) emissions and list price. The higher the CO2 emissions and list price of the car, the higher the BIK value and the corresponding tax.
The fuel benefit charge is a component of the company car tax and is calculated by multiplying the fuel benefit charge multiplier by the car's appropriate percentage, which is based on its CO2 emissions. The fuel benefit charge multiplier is set by HM Revenue and Customs (HMRC) and can change annually. For example, for the 2023/2024 tax year, the fuel benefit charge multiplier is £27,800. If a car falls into the 105-109 g/km CO2 emissions bracket, with a corresponding BIK percentage of 25%, the fuel benefit charge would be £6,950 (0.25 x £27,800). This value is then multiplied by the driver's income tax band, typically 20% or 40%, to arrive at the final tax amount.
It is important to note that the fuel benefit charge only applies when the company provides fuel for private use by employees or their families in a 'company vehicle'. If the employee is required to reimburse the full cost of private fuel and does so, the fuel benefit charge is reduced to nil. Additionally, there is currently no fuel benefit charge for electric cars.
Company fuel tax considerations can be complex, and employers should keep accurate records of employee expenses and benefits. HMRC provides a company car and fuel benefit calculator to assist in determining the correct tax liability. It is also essential to stay informed about HMRC's Advisory Fuel Rates (AFRs) and the Advisory Electric Rate (AER), which are subject to periodic updates.
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BIK tax
If you drive a company car, you may be liable to pay a benefit-in-kind (BIK) tax, also known as a "company car tax". BIK is a tax on employees who receive benefits or perks on top of their salary. It is the tax that you have to pay on additional benefits you receive from your employer, which is in addition to your regular salary. The amount of BIK tax you have to pay depends on the value of the benefit and your personal tax rate. Your employer is responsible for reporting the BIK benefits to HMRC and calculating the correct amount of tax that you owe.
The amount of BIK tax you'll pay will be broken down into certain pay brackets that consider the environmental impact of the vehicle and the P11D value of the car. The P11D value is the list price of the car, including extras and VAT, but without the first-year registration fee and vehicle tax. The BIK percentage is set by the tax authorities and depends on the type of benefit. You can find the BIK percentage for different types of benefits on the government's BIK tax rates table.
To calculate the company car tax, multiply the P11D value by the BIK percentage banding, then multiply that figure by your tax band. This will give you your annual tax. Divide by 12 to get your monthly outgoing. To calculate how much fuel benefit you'll have to pay, you need to calculate the vehicle's BIK with a fuel charge multiplier. The BIK tax is evaluated by multiplying the car's CO2 emission level, the value of the car when new, including any modifications, and your income tax bracket.
If you’re finding that the tax amount is too high, there are ways in which you can reduce the amount. To lower the amount of BIK tax you have to pay, you could choose to change your vehicle.
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Fuel cards
To avoid unnecessary tax expenses, it is important to keep clear records of business and private mileage for all fuel card users. Employers can provide a GPS mileage app to save employees' time while still substantiating business use of fuel. This keeps the benefit non-taxable while also holding employees accountable for their usage.
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Private use
To calculate the company fuel tax for private use, several methods can be employed:
- Lease Value Rule: This method involves multiplying the annual lease value of the car (obtained from the IRS Annual Lease Value table) by the percentage of personal mileage driven. This calculation provides the Fair Market Value (FMV) of the employee's personal use of the company vehicle. It's important to note that this value includes maintenance and insurance costs but not employer-provided fuel, which must be valued separately according to federal tax laws.
- Cents-per-mile or Annual Lease Valuation Method: This approach requires using the IRS standard business mileage rate and multiplying it by the number of personal miles driven. For this method to be applicable, certain conditions must be met, such as the vehicle being driven at least 10,000 miles annually.
- Benefit-in-Kind (BIK) with Fuel Charge Multiplier: This calculation involves determining the vehicle's BIK percentage, which is based on its CO2 emission level and the value of the car when new, and then multiplying it by the fuel charge multiplier. The fuel charge multiplier is set by HMRC and can change annually.
- P11D Value and BIK Percentage: This method calculates the company car tax by multiplying the P11D value of the car (list price including optional extras, VAT, and delivery charges, minus certain fees) by the BIK percentage banding, and then further multiplying that figure by the employee's tax band.
It's worth noting that certain exemptions and exclusions may apply. For instance, if employees reimburse their employer for the fuel consumed during private use within the tax year, they may not be subject to the company fuel tax. Additionally, pool cars, which are shared company vehicles used exclusively for business purposes, are generally exempt from fuel tax unless used for personal reasons.
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Frequently asked questions
Company car fuel tax applies to employees who have a company car and free fuel for private use. Private use includes journeys between home and work, unless the employee is travelling to a temporary place of work.
The benefit in kind (BIK) tax is calculated by multiplying the car's CO2 emission band by the fuel benefit charge multiplier. This figure is then multiplied by the employee's marginal rate of tax.
If you are spending under £1390 a year on fuel then the car fuel benefit is perhaps not worth it, as you’d still have to pay the calculated amount. However, if you are on average paying out more for fuel than the car fuel benefit amount, then having a company car and receiving free fuel is worth it.
Using a fuel card for business purposes is not classed as a taxable benefit. Therefore, if you use a fuel card for business trips only, you do not have to pay tax on it.
