October 29th, 2012 / Insight posted in

Avoid paying for private fuel

BC writes: We insist that staff with company cars reimburse us for all fuel used for private travel. A recent recruit wishes to vary his benefits package to include the company provision of private fuel. I do not wish to make an exception for one person, so please give me good reason to turn him down.

Before you consider changing the treatment of your employee’s private fuel, it is worth considering whether it is in the employee’s interest to do so, writes Jon Sutcliffe, partner at Kingston Smith LLP. 
This is unlikely to be a worthwhile benefit unless there is very high private mileage. In recent years, many cases have shown that the tax paid on the benefit is more expensive than paying in full for the fuel used privately. The recent increase in fuel prices and the proliferation of low-emission cars have distorted this, so it is worth looking at the specifics of your case. If the employer pays for any fuel for private mileage in a company car, the full benefit applies.

Car fuel benefit is based on a percentage of the fuel benefit multiplier, which is £18,800 for the current tax year. Even a low-emission petrol car with a carbon dioxide emissions figure of up to 120g/km will mean an employee is taxed on 10% of the multiplier. For a 40% taxpayer this equates to £752 of tax on the benefit. Even at current fuel prices, this tax alone equates to more than 5,000 private miles for most small cars. 

Change the car to a diesel and increase the emissions figure to 125g/km, and the tax jumps to £1,353, which is likely to equate to about 10,000 private miles a year before it’s worth having the company pay for private fuel. 

The car fuel benefit can be avoided if the full cost of fuel for private mileage is both required to be, and is, reimbursed. 

A common reason for employees taking the benefit even though it may cost them more is because HM Revenue & Customs expects to see records identifying private mileage and the employee is not prepared to keep these.