How Can I Reduce My Company Car Fuel Benefit Charges?Written on June 16, 2015 by Kirk Rice LLP
Taxing Times QuestionsThe Question:
My employer provides me with a company car which is fully expensed in terms of running costs and fuel. I do a lot of business miles in my job and very few private miles. I realise that there is a tax charge on the car and the fuel, but the tax on the fuel seems enormous for the amount of miles I do personally. Can anything be done?
Kirk Rice LLP answers:
The fuel benefit charge is very expensive and in many cases you can be paying more tax on the fuel than on the company car. This will be the case where the list price of the car is less than the fuel multiplier (£22,100 for 2015/16). It is therefore worthwhile to cut the fuel benefit charge.
There are two ways to do this;
Buy a new company car with a lower emissions rating or pay for your own private use petrol and reimburse the company for every drop used privately.
To make the second option work you will need to reimburse the full cost of all private fuel and must actually do so. If your private mileage is low, this can be a valuable saving for both you and your employer. Reimbursement can be made using actual costs or HMRC advisory fuel rates. This is because the current multiplier of £22,100 (2015/16 rates) used in calculating the fuel benefit means that the fuel benefit is often not worthwhile despite high pump prices.
Further, your employer saves employers national insurance at 13.8% on the value of the benefit and you save tax by eliminating the fuel benefit.
For example, let’s say you have a car with CO2 emissions of 200 g/km. For 2015/16the appropriate percentage for 200 g/km is 35% and so the fuel benefit will be £7,735 (35% of £22,100). A 40% taxpayer will pay tax of £3,094 on the fuel benefit (40% of £7,735).
If we now say your private mileage is 5000 miles per year, your car averages 40 mpg and the price of fuel is £1.20 per litre the cost of the fuel is around £681 for the year.
As the actual cost of the fuel for private motoring is less that the amount paid in tax (£3,094) by reimbursing the company for the cost of the private fuel you would save £2,413!
If you would like more advice regarding this issue or any other tax matter, please contact us.
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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
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