Mercedes Mullins
If your employer provides you with a company car, you may need to pay the company car fuel benefit charge. This charge is calculated by multiplying the fuel benefit charge multiplier by the car's appropriate percentage, which is based on the car's CO2 emissions. The fuel benefit charge multiplier can change each year and is controlled by HMRC. To avoid paying this charge, you must reimburse your employer for the full cost of any private fuel used. Additionally, if your fuel expenses are low, you may end up paying more with the benefit, so it's important to consider your mileage and fuel costs when deciding whether to use a company car.
How to avoid the car fuel benefit charge
| Characteristics | Values |
|---|---|
| Employee pays for all private fuel | The fuel benefit charge is reduced to nil |
| Employer reimburses employee for fuel at cost | No fuel benefit charge |
| Employer provides electricity for the car | No fuel benefit charge |
| Company car available only for part of the year | Proportionate reduction in fuel benefit charge |
| Employee uses a fuel card for business trips only | No tax on fuel |
| Employee uses company car full-time | Employee pays company car fuel benefit |
| Employee drives a lot of miles and spends a lot on fuel | Company car and free fuel may be worth it |
| Employee drives few miles and spends little on fuel | Company car and free fuel may not be worth it |
| Car has lower emissions | Lower taxable value |
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What You'll Learn
- Understand HMRC's advisory fuel rates and how they're calculated
- Know how to calculate the taxable value of car fuel benefits
- Learn about fuel cards and how they can help with tracking and tax
- Understand how the benefit charge is calculated and what it depends on
- Know the difference between a company car and a private car in terms of fuel benefits
Understand HMRC's advisory fuel rates and how they're calculated
If your employees use company vehicles outside of work, you must understand HMRC's advisory fuel rates and how they're calculated. HMRC reviews these rates four times a year, and the costs are based on data from the Department for Energy Security and Net Zero (DESNZ) and the Automobile Association website. The advisory fuel rates consider the car's miles per gallon (MPG), which is determined based on manufacturers' data and adjusted to reflect the distribution of specific models sold to businesses. This MPG figure is then reduced by 15% to account for real-world driving conditions and the fact that actual fuel efficiency is often lower.
The fuel benefit charge is calculated by multiplying the fuel benefit charge multiplier by the car's appropriate percentage, which is based on its CO2 emissions. Cars with lower emissions are assigned a lower percentage, while those with higher emissions receive a higher percentage, ranging from 2% to 37%. Additionally, your company must pay Class 1A National Insurance Contributions on the value of the car fuel benefit provided to employees, currently at a rate of 13.8%.
It's important to note that the fuel benefit charge can be reduced to nil if the employee covers the full cost of private fuel. In this case, the employer can choose to reimburse the employee for the cost of the fuel or use HMRC's Advisory Fuel Rates. A proportionate reduction in the fuel benefit charge may also apply if the company car is only available for part of the year or if the benefit of the car is shared.
When deciding whether to offer a company car, employees should consider their driving habits and fuel costs. If they drive many miles and their fuel costs are high, the fuel benefit could be advantageous. However, if their fuel expenses are low, they may end up paying more due to the benefit charge.
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Know how to calculate the taxable value of car fuel benefits
To calculate the taxable value of car fuel benefits, you can use HMRC's company car and car fuel benefit calculator. This method takes into account the car's fuel type and CO2 emissions. Diesel cars that meet the Euro 6d standard (also known as Real Driving Emissions 2) are classified as Type 'F'. All other diesel cars are Type 'D', and cars with other fuel types are Type 'A'.
The taxable value is also influenced by the car's availability during the tax year. If the car is unavailable for a significant portion of the year due to mechanical faults or other reasons, it will impact the calculation.
Additionally, the number of days the car is used or available for private use by an employee is a factor in the calculation. This is considered under the statutory formula method, along with the base value of the car and any associated costs, such as dealer delivery charges and accessories.
Another approach is the operating cost method, which involves calculating the mean miles per gallon (MPG) based on manufacturers' data and then adjusting it to account for real-world driving conditions, typically resulting in a 15% reduction.
It's important to note that the taxable value of car fuel benefits is separate from the taxable value of the car itself.
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Learn about fuel cards and how they can help with tracking and tax
Fuel cards, also known as fleet cards, are a form of payment that drivers can use to purchase fuel and other vehicle-related expenses. They can be used to track and manage fuel expenses, and provide detailed transaction records that can be easily integrated into accounting systems. This makes it simple to differentiate between personal and business-related fuel costs.
Fuel cards offer a range of benefits for businesses, including real-time controls, purchase limits, discounts, and rewards programs. They can also help to reduce fuel costs and improve control over fuel purchases. One of the key advantages of fuel cards is their ability to streamline fuel expense reporting, making it more efficient, accurate, and flexible. With fuel cards, businesses can avoid the cumbersome and error-prone process of relying on drivers to collect receipts and manually enter data into spreadsheets. Instead, fuel card transactions can be automatically integrated into accounting systems, providing detailed and actionable data that can be easily accessed and analysed.
To maximise the benefits of fuel cards, it is important to have a well-documented and organised system. This includes keeping copies of fuel card statements, receipts, and invoices, as well as clearly separating personal and business-related expenses. Integrating fuel cards with GPS tracking can also help eliminate fuel card fraud, control costs, and complete IFTA reports. By combining transaction data with vehicle location, date, time, and the amount of fuel purchased, businesses can quickly identify fraudulent or unlawful fuel card use.
While fuel card expenses can be deductible as ordinary and necessary business expenses, there are limitations and restrictions to consider. For example, personal expenses on a fuel card are not eligible for a business expense deduction. It is important to consult with a tax professional or accountant to ensure compliance with tax laws and regulations and to maximise the tax benefits of fuel card usage.
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Understand how the benefit charge is calculated and what it depends on
The car fuel benefit charge is calculated by multiplying the fuel benefit charge multiplier by the car's appropriate percentage. The car's appropriate percentage is the CO₂ emissions-derived percentage used to calculate the car benefit charge, including any diesel supplement. Cars with lower emissions are assigned a lower percentage, while those with higher emissions receive a higher percentage, ranging from 2% to 37%.
The fuel benefit charge multiplier is set by HMRC and can change annually. For the 2023/2024 tax year, the multiplier is £27,800. To calculate the total cost, multiply the car fuel benefit charge by your income tax band, which is typically either 20% or 40%.
For example, if your BIK (benefit in kind) percentage is 25% because your petrol vehicle falls into the 105-109 CO₂ emissions bracket, you would multiply 0.25 (25%) by £27,800 to get £6,950. You would then multiply this figure by your income tax band.
It's important to note that the fuel benefit charge is reduced to nil if the employee covers the full cost of all private fuel. Additionally, there is currently no fuel benefit charge for cars powered by electricity.
Whether or not an employee should use a company car depends on how much they drive and spend on fuel. If their fuel costs exceed the car's fuel benefit, it can be a good deal. However, if their fuel expenses are low, they may end up paying more due to the benefit charge.
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Know the difference between a company car and a private car in terms of fuel benefits
It is essential for employers to understand the difference between a company car and a private car in terms of fuel benefits. If your company provides vehicles for personal use, you must be informed about car fuel benefits. The car fuel benefit is relevant to UK taxpayers who use their company car for personal use and don't pay for the fuel themselves. Normal commuting is considered personal use for company car fuel benefit purposes.
For drivers of company cars, employers can pay for their private fuel. When employees use their company car for personal reasons, they accumulate private miles. This mileage may be minimal, but if an employee uses the vehicle for multiple cross-country trips in a year, their private miles will add up. Therefore, having their private fuel paid for by their employer may seem advantageous.
However, when employers cover an employee's private fuel, the employee becomes subject to an additional tax—the Car Fuel Benefit Charge. This extra charge can outweigh the benefits of having their employer pay for their fuel, depending on the type of car and their usage. For instance, a basic-rate taxpayer driving 4400 private miles in a diesel car with 100g/km CO2 emissions would pay £1,377.60 in tax for this benefit, while the value of the free fuel would be just over £645. In this case, it would be more financially beneficial for the employee to reimburse their employer for the fuel.
Whether an employee should use a company car depends on how much they drive and spend on fuel. If their mileage is high and their fuel costs exceed the car's fuel benefit, it is a good option. However, if their fuel expenses are low, they may end up paying more with the benefit. Employees must pay tax on any car fuel benefit they receive. The taxable value is calculated using HMRC's appropriate percentage, which considers the car's CO2 emissions. Employers must also pay Class 1A National Insurance Contributions on the value of the car fuel benefit provided to their employees.
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Frequently asked questions
The car fuel benefit charge is calculated by multiplying the fuel benefit charge multiplier by the car's appropriate percentage, which is based on the car's CO2 emissions.
If you are spending under a certain amount a year on fuel, the car fuel benefit charge may not be worth it, as you’d still have to pay the calculated amount. This depends on how many miles you’re driving. If your fuel expenses are low, you could end up paying more with the benefit.
The fuel benefit charge multiplier is set by HMRC and can change each year. For the 2023/2024 tax year, the multiplier was £27,800. For 2025 to 2026, the multiplier will increase to £28,200.
To calculate your company car tax, multiply the P11D value by the BIK percentage banding, then multiply that figure by your tax band.
