Regan Brown
There are several ways to account for fuel put into employees' cars. Firstly, employers can provide company gas cards to their employees, which can be used to purchase fuel and other driving-related expenses at specific locations. Secondly, employers can reimburse employees for their fuel expenses, either through a pence-per-mile rate for mileage driven or by using the Advisory Fuel Rate (AFR) provided by HMRC. Additionally, employees can claim tax relief on fuel expenses if they use their own vehicles for company business. To ensure accurate record-keeping, employees must maintain detailed vehicle logs and submit them to their employers. Implementing a company vehicle fuel policy, including personal-use chargebacks and mileage tracking apps, can help manage fuel expenditures and hold employees accountable for their fuel usage.
| Characteristics | Values |
|---|---|
| Reimbursement | Employers are not legally required to reimburse fuel expenses unless stated in the employment contract or policies. |
| Mileage Allowance Payments (MAPs) | Employers can pay MAPs for business travel. Rates vary by vehicle type (e.g. 45p per mile for cars up to 10,000 miles). |
| Fuel Allowance | Employers can offer a fuel allowance to employees, either by paying a pence-per-mile rate or by providing a fuel card. |
| Company Gas Cards | Companies can provide employees with gas cards to pay for fuel and other driving expenses at specific, approved locations. |
| Tax Relief | Employees have the right to tax relief for journeys carried out as part of their work. |
| Record-Keeping | Employees must keep and submit a detailed vehicle log of all business trips, including date, start and end locations, journey purpose, and odometer readings. |
| Personal Use | If a company car is used for personal reasons, the expenditure may be considered taxable. |
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What You'll Learn
Reimbursing employees for fuel expenses
If your employees use their own vehicles for work-related travel, you may need to reimburse them for their fuel expenses. Regular commuting is generally considered the employee's responsibility and is not usually reimbursable. However, it is generally expected that you will reimburse employees for reasonable public transport costs for work-related travel, excluding their regular commute.
If you provide a company vehicle, it is standard to cover the gas expenses. You can also provide company gas cards for employees, which can be used at specific, approved locations. These cards can be used similarly to regular payment cards, allowing employees to pay for gas and other business driving expenses.
If you reimburse your employees for their fuel expenses, you must implement specific procedures and rules. These rules should be detailed in your expenses policy and could include requirements for employees to provide receipts within a certain timeframe. It is also important to note whether the expenses are taxable. Taxable expenses over a specific amount need to be reported to the relevant tax authority, such as HM Revenue and Customs (HMRC) in the UK.
In the United States, the Internal Revenue Service (IRS) provides guidance on employee business expenses and reimbursements. Employers can use the IRS mileage rate for reimbursement instead of having employees record all their expenses. If the reimbursement is at or below the IRS standard mileage rate and meets the rules of an accountable plan, it is tax-free. To qualify as an accountable plan, expenses must have a business connection, be adequately accounted for within a reasonable time, and any excess reimbursement must be returned within 120 days.
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Tax relief for work-related journeys
If your employees are often on the road, you know how costly fueling your fleet can be. There are a few ways to reduce your gas expenses and make your life easier, such as using company gas cards for employees, which can give you and your staff more convenience and savings. These cards can simplify paperwork and assist in managing fuel expenditures and reporting. They are connected to the company's bank account and allow employees to pay for gas and other business driving expenses at specific, approved locations.
Alternatively, you can place a cap on how many times a week and even determine the exact days they can fill up. For example, allowing fill-ups on either Fridays or Mondays can discourage employees from using company-paid gas over the weekend. Another tactic is to compare your employees' mileage, fuel economy, and overall performance on the road. If you notice discrepancies, ask your employees to pay you back for the gas they used for personal driving.
If you are an employee and you have to travel for work, you may have to pay for other travel-related expenses too, like meals or overnight accommodation. Your employer may reimburse you for these expenses, or if they do not, you may be able to claim tax relief for them from HMRC. You can use form P87 to claim a tax refund on employment expenses, including subsistence and accommodation costs related to business travel. Travel expenses are only allowable for tax purposes if:
- You have to make the journey in the performance of your duties of employment
- You make the journey to or from a place you have to attend in the performance of your duties, including trips from your workplace to another workplace or to visit a customer
Business travel deductions are available when employees must travel away from their main place of work for business reasons. Travel expenses must be ordinary and necessary. They can't be lavish, extravagant, or for personal purposes.
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Mileage Allowance Payments (MAPs)
MAP rates are not compulsory, and employers may choose to reimburse employees at a lower rate. In such cases, employees can claim tax relief on the unused balance of the approved amount through Mileage Allowance Relief (MAR). To do this, employees must record each business journey, including the date and distance travelled. They can then calculate the difference between the approved MAP rate and the amount they were actually paid, and claim tax relief on this amount.
For example, if an employee travels 11,500 business miles and their employer reimburses them at a rate of 15p per mile, the employee will receive a total of £1,725. However, the maximum claim for 11,500 miles at the approved MAP rates is £4,875. This results in a shortfall of £3,150, on which the employee can claim tax relief. If the employee pays tax at the basic rate, they can claim a refund of 20% of the shortfall, which would be £630.
To simplify the reimbursement process and help manage fuel expenditures, some companies provide employees with company gas cards. These cards function like regular payment cards and are connected to the company's bank account, allowing employees to purchase fuel and other driving-related expenses at specific approved locations. Company gas cards can provide convenience and savings for both employers and employees, but it is important to have a fuel use policy in place to control expenses and hold employees accountable.
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Advisory Fuel Rates (AFRs)
AFRs are released four times a year (on March 1, June 1, September 1, and December 1) to reflect current fuel prices and vehicle efficiency standards. They are calculated by taking the average cost of a litre of fuel (unleaded, diesel, or LPG) and combining this with the average economy figures of new cars supplied to businesses, depending on engine size. Once the fuel-per-mile costs are calculated for each fuel and engine size category, they are rounded up or down to the nearest penny, resulting in the AFR.
AFRs are given as pence-per-mile figures and can be used by employees to claim back from their company for refuelling their work vehicle. Conversely, they can also be used by companies to reimburse fuel costs for private journeys in company cars. It is important to note that reimbursing employees above the AFR may result in extra tax charges, with the excess payment being treated as taxable profit.
While not always required, it is good practice to keep fuel receipts for AFR-based claims, especially for audits or reimbursement policies. Additionally, companies can use company gas cards to simplify the reimbursement process and better manage fuel expenditures. These cards function like regular payment cards, allowing employees to pay for gas at specific, approved locations.
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Company Fuel Benefit Charge Multiplier
The car fuel benefit charge is calculated by multiplying the fuel benefit charge multiplier by the car's appropriate percentage, which is the CO2 emissions-derived percentage used to calculate the car benefit charge, including any diesel supplement. The Advisory Fuel Rates set by HMRC are used to determine the reimbursement amount for fuel costs incurred by employees during volunteer work or private use.
The appropriate percentage for HMRC's fuel rates calculation considers the car's CO2 emissions, with lower-emission vehicles assigned a lower percentage and higher-emission vehicles receiving a higher percentage, ranging from 2% to 37%. Additionally, the mean miles per gallon (MPG) is determined based on manufacturer data and then reduced by 15% to reflect real-world driving conditions and account for lower fuel efficiency.
The fuel benefit charge is reduced to nil if the employee covers the full cost of private fuel. In such cases, the employer can choose to reimburse at cost or use HMRC's Advisory Fuel Rates. A proportionate reduction in the fuel benefit charge is also made if the company car is only available for part of the year, if private fuel provision is discontinued midway, or if the car benefit is shared.
It is important to note that normal commuting is considered personal use for company car fuel benefit purposes. Therefore, employees who drive a lot and have high fuel costs may benefit from using a company car, while those with lower fuel expenses may end up paying more with the benefit.
Additionally, companies can provide company gas cards to employees, which can offer convenience and savings. However, it is important to have a fuel use policy in place to control expenses and hold employees accountable.
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Frequently asked questions
There are a few ways to reimburse employees for fuel. One way is to pay them a pence-per-mile rate for the mileage driven. Another way is to provide them with a fuel card to use when purchasing fuel. A third option is to give them a car allowance, which can be used to lease a car or cover fuel costs.
Yes, employees can claim tax relief for journeys carried out as part of their work. They can either have their fuel expenses reimbursed or claim a deduction from their income. It is the employee's responsibility to claim this tax relief and keep a detailed record of their work journeys.
If the car provided by the employer is used solely for official purposes, there is no tax liability. However, if the car is used for personal purposes, the expenditure will be considered taxable income for the employee. Employers should also be aware of advisory fuel rates and ensure compliance with HMRC guidelines to avoid any unnecessary tax implications.
Company gas cards are payment cards that employees can use to pay for gas and other driving-related expenses at specific, approved locations. They are connected to the company's bank account and allow employers to control expenses and hold employees accountable for their fuel usage.
