Sylvie Willis
Understanding the tax implications of fuel cards is essential for both businesses and individuals. Fuel cards can be used as a payment method for fuel, offering convenience and streamlining VAT and expenses. However, the tax treatment depends on the purpose of the fuel usage, with a clear distinction between business and personal use. While fuel cards used solely for business purposes are generally not considered taxable benefits, personal travel incurs tax liabilities, including VAT and National Insurance contributions. Proper planning, clear policies, and accurate record-keeping are crucial to navigate fuel card taxation effectively and avoid unnecessary costs.
Fuel Card Tax Characteristics and Values
| Characteristics | Values |
|---|---|
| Tax on fuel card | No tax if used for business trips only |
| Tax on personal use | Yes, the company is liable to pay National Insurance contributions on the value of the fuel used for personal use |
| VAT on fuel | 20% |
| VAT reclaim | Yes, if used for business trips |
| VAT reclaim method | HMRC VAT fuel scale charge online calculator |
| VAT reclaim requirements | CO2 emissions of the vehicle, or engine size for vehicles made before 1997 |
| VAT reclaim period | Receipts must be kept for 3 years after the end of the tax year they date from |
| Fuel card benefits | Simplifies the process of recording and claiming for business miles travelled |
| Fuel card abuse prevention | Limit fuel card use to certain days, cap how much fuel can be pumped, provide a company mileage log |
| Fuel card and tax avoidance | Use a mileage app to keep the benefit non-taxable while holding employees accountable |
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What You'll Learn
- Using a fuel card for business purposes is not a taxable benefit
- If a fuel card is used for personal travel, the company is liable to pay National Insurance contributions on the value of the fuel
- Mileage logs are a way to substantiate business records associated with expenses
- VAT on fuel is calculated at a flat rate of 20%
- Fuel cards simplify the practicalities of calculating and paying tax
Using a fuel card for business purposes is not a taxable benefit
It is important to note that the tax treatment of fuel cards depends on whether the fuel card is used solely for business purposes or for a mix of business and personal use. If a fuel card is used for both business and personal fuel, the employee must reimburse the company for any personal fuel expenses. This can be done through a chargeback, which can take several different forms, including a common method of tracking mileage for business trips. This is because any fuel expense that cannot be substantiated as business use will be treated as taxable income for the employee.
To substantiate business use, companies can employ a mileage log or another detailed form of proof. Mileage logs record the date, purpose, destination, and mileage of a trip, providing substantiation of business use. This can be done through a simple Excel spreadsheet or a GPS mileage app, which can save employees' time while still substantiating business use of fuel. By pairing a fuel card with a mileage app, the benefit remains non-taxable, and employees can be held accountable to not abuse the card.
Additionally, it is worth noting that VAT can be reclaimed on fuel used for business miles or in a company car. This can be done through the VAT fuel scale charge provided by HMRC, which is a simplified way of taxing private fuel use. To use this method, the CO2 emissions of the vehicle are entered into the HMRC VAT fuel scale charge online calculator. This scale changes four times a year: on the first of March, June, September, and December.
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If a fuel card is used for personal travel, the company is liable to pay National Insurance contributions on the value of the fuel
The use of a fuel card for business purposes is not considered a taxable benefit. However, if a fuel card is used for personal travel, it becomes a taxable benefit, and the company is responsible for paying National Insurance contributions on the value of the fuel used for personal travel. This is typically calculated at 13.8%.
To avoid tax liability, it is essential to differentiate between business and personal use. Companies should implement clear policies for fuel cards and reimbursements, setting boundaries and specifying when and how employees can use company funds for fuel. It is also crucial to keep detailed records of mileage logs or other forms of proof to substantiate business use.
Employees must not use company fuel cards for private fuel usage. If they do, they should refund the cost of any private fuel to the company. This ensures compliance with tax obligations and helps businesses avoid losing VAT paid on fuel used for personal travel.
To simplify tax calculations and provide transparency, fuel cards can be beneficial. They offer a centralised record of fuel purchases, making it easier for companies to track and manage fuel expenses, especially when used in conjunction with mileage logs or vehicle tracking apps.
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Mileage logs are a way to substantiate business records associated with expenses
The use of fuel cards can significantly simplify the process of calculating and paying taxes. However, it is important to note that the tax you must pay on fuel remains the same regardless of whether you use a fuel card, cash, or any other payment method. In the context of fuel cards, the key issue is substantiating business use by clearly defining business use versus personal use. This is where mileage logs play a crucial role.
Mileage logs are an effective way to substantiate business records associated with expenses. They are essential for reimbursements and ensuring that reimbursements are not considered fringe benefits or taxable income. By recording the date, purpose, destination, and mileage of a trip in a timely manner, employees can provide substantiation for their business-related trips. This information can be recorded through various methods, including paper logs, notebooks, diaries, digital spreadsheets, or mileage tracking apps. The IRS accepts all these formats as long as the necessary records are present.
For a mileage log to be IRS-compliant, it should include the total annual mileage for both business and personal use, the annual business mileage, the per-use business mileage, the date of use, the business destination, and a brief explanation of the business reason. Additionally, the IRS requires that mileage be recorded within a reasonable amount of time, preferably at the start and end of each trip. This timely recording ensures that the mileage log accurately reflects the business use of the vehicle.
It is important to note that the IRS may request mileage logs during an audit. Therefore, it is recommended to retain mileage logs for at least three years, or even up to seven years, to be safe. By maintaining accurate and organised records, businesses can support their claims of business mileage and ensure compliance with IRS regulations.
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VAT on fuel is calculated at a flat rate of 20%
In the UK, VAT on fuel is calculated at a flat rate of 20%. This flat rate is applied to fuel used for vehicles, while fuel purchased for domestic use has a reduced rate of 5%. This reduced rate also applies to VAT on fuel for heating.
VAT on fuel is calculated after fuel duty, and the total amount of VAT you pay depends on the type of fuel and its CO2 emissions. For example, the fuel duty rate for petrol, diesel, biodiesel, and bioethanol is 52.95 pence per litre, while LPG is charged at 28.88 pence per kg.
Businesses and individuals can reclaim VAT on fuel used for business trips or in a company car. To do so, it is essential to keep detailed mileage logs and fuel receipts for at least three to four years. Fuel cards can simplify the process of calculating and paying tax, as they provide a digital record of all fuel purchases.
It is important to note that if a fuel card is used for both business and personal fuel, the personal fuel portion may be considered a taxable benefit. To avoid this, employees should reimburse their employer for any non-business fuel usage.
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Fuel cards simplify the practicalities of calculating and paying tax
Fuel cards are an effective way to simplify the practicalities of calculating and paying tax. They are particularly useful for businesses that use credit or debit cards for fuel purchases, as they eliminate the need to manually scour through months of invoices to calculate fuel spending. With fuel cards, all fuel transactions are listed in the card provider's client portal, making it easy to generate quarterly or yearly reports. This simplifies the process of claiming back VAT on business fuel expenses and ensures HMRC compliance.
One of the key benefits of fuel cards is the ability to differentiate between business and personal fuel usage. When fuel cards are used solely for business purposes, they are not considered a taxable benefit. However, if they are also used for personal travel, fuel card tax comes into play, and the company becomes liable for the user's National Insurance contributions on the value of the personal fuel. Therefore, it is essential to establish clear policies and place reasonable limits on total fuel usage to separate business and personal use effectively.
To substantiate business use, it is important to maintain mileage logs or other detailed forms of proof. This can be facilitated by pairing the fuel card with a mileage app, which helps employees track their mileage, date, purpose, and destination. By providing a GPS mileage app, employers can save time for their employees while ensuring that fuel usage remains non-taxable.
Fuel cards also offer additional advantages, such as minimising fraud, reducing storage space for fuel expenditure records, and avoiding large interest charges associated with credit card fuel purchases. Overall, fuel cards provide a simplified and organised approach to managing fuel-related taxes, benefiting both businesses and employees.
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Frequently asked questions
Using a fuel card for business purposes is not classed as a taxable benefit. However, if you use your card for personal travel, fuel card tax comes into play.
You can use the HMRC VAT fuel scale charge online calculator. You need to enter the relevant car or van's CO2 emissions, which you will usually find in the vehicle's log book.
It is a legal requirement to keep VAT receipts for three years, dating from the end of the tax year they were issued. HMRC can ask for four years' worth of receipts.
If you use your fuel card for private mileage, you must reimburse your employer for any fuel not used for business trips. You can also use a mileage app to keep the benefit non-taxable while also holding employees accountable for potential card abuse.
