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Fuel Benefit Charges – How Can I Reduce Them For My Company Car?Written on August 16, 2018 by Kirk Rice LLP

Fuel Benefit Charges – How Can I Reduce Them For My Company Car?
Taxing Times Questions

The 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 to reduce the fuel benefit charges?

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. The fuel benefit is based on a fixed value set by HMRC each year, for this current tax year 2018/19 this is £23,400. The percentage benefit charge based on the CO2 emissions for the car is applied to this value to calculate the annual benefit in kind for the fuel. The percentage applied not only depends upon the CO2 emissions, but also the fuel type of the car in question. Diesel cars attract a 4% hike in the percentage applied (up from 3% in 2017/18) which is capped to a maximum percentage of the list price at 37%, and are therefore more costly in terms of tax (although they tend to have higher mpg values). Where the list price of the car is less than the fuel multiplier (£23,400 for 2018/19) the benefit is likely to be disproportionate and it is often worthwhile to cut the fuel benefit charge.

There are two ways to do this;

  1. If possible, (i) change your company car for one with a lower emissions rating or, more likely, (ii) pay for your own private use fuel by reimbursing the company for every drop used privately.
  2. To make the second option work you will need to reimburse the full cost of all private fuel to your employer. If your private mileage is low, there can be a valuable saving as the high tax charge negates the benefit despite the high pump prices. Reimbursement can be made using actual costs or HMRC advisory fuel rates which are provided quarterly.

Further, your employer will also be able to make a saving on the National Insurance Contributions (at 13.8%) they pay on the value of the fuel benefit they are providing you with.

For example, let’s say you have a car with CO2 emissions of 165 g/km. For 2018/19 the appropriate percentage for a petrol car with emissions of 165 g/km is 34% and so the fuel benefit will be £7,956 (34% of £23,400). A higher rate (40%) taxpayer will pay tax of £3,182 on the fuel benefit (40% of £7,956).

If we now say your private mileage is 5,000 miles per year, your car averages 52 mpg (the average for the UK according to DVLA Table TSGB0303) and the price of petrol is £1.19 per litre (approx. £5.41 per gallon), the cost of the fuel is around £520 for the year. As the actual cost of the fuel for private motoring is less that the amount paid in tax (£3,182), by reimbursing the company for the cost of the private fuel you would save £2,662! In this example, your private mileage would have to be more than six times greater (ie more than 30,000 miles per year) before the tax charge becomes more cost effective than paying for your own private fuel.

As the ‘multiplier’ will be increasing in line with RPI and the percentage bands change each year, the tax will only increase. Unless you have significant private mileage, employer provided fuel is of little benefit financially.

Any reader interested in discussing you own fuel benefit charge further, you can telephone Viru Patel in Ascot on 01344 875000, or Hadley Baldock in Putney on 020 8789 8588 or email info@kirkrice.co.uk

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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. The information is based on current tax legislation which may change in future.