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Private Fuel – A Benefit?

Many years ago it was beneficial to provide employees with a ‘fully expensed’ company car including fuel for private and business use.  This was because the tax regime levied a small charge on the private fuel benefit compared to the actual cost of private fuel provided.

 

It is HMRCs stated view that the fuel benefit charge applies when any fuel is provided to the employee, even if it is only provided.  The charge is then reduced to nil if it can be shown that the employee is required to make good all private fuel (and actually does so in the tax year), or fuel is only made available for business use.   

So, is it a benefit still worth having and if not how can we satisfy HMRC that drivers only claim for business miles?

Firstly, let’s consider the benefit position.  Basically each tax year a taxable benefit (cash equivalent) is based on a fixed sum (scale charge) and multiplied by the appropriate percentage (based on the CO2 emissions of the company car) and then the employee’s marginal tax rate applies e.g.

£21,100 x 21% =4,431 x 40% = £1,772.40

This is irrespective of the actual private mileage travelled or cost of fuel consumed.   In addition, the employer pays for the fuel,reclaims the VAT, has a VAT scale charge and Employers NIC applied.  The benefit to employee and employer are shown in the table.

 

MPG

Gallons

Cost of fuel

Tax on BIK

Net benefit to employee

Cost to employer

27

444

£2,621

£1,772

£849

£2,964

30

400

£2,359

£1,772

£587

£2,746

35

343

£2,022

£1,772

£250

£2,465

40

300

£1,769

£1,772

-£3

£2,254

45

267

£1,573

£1,772

-£200

£2,090

50

240

£1,415

£1,772

-£357

£1,959

55

218

£1,287

£1,772

-£486

£1,852

60

200

£1,179

£1,772

-£593

£1,763

65

185

£1,089

£1,772

-£684

£1,687

70

171

£1,011

£1,772

-£761

£1,622

 Based on 12,000 private miles, fuel at 1.299pp/l and 40% tax payer with a 21% CO2 charge

 

This is an area of HMRC and Treasury focus, with the scale charge increasing from £14,400 in the 2007/8 tax year to £21,100 in the 2013/14 tax year.  That is an increase of £6,700, being 46.5% and an average uplift of 7% per annum.

If you are one of the 250,000 who, according to the 2013 HMRC statistics, still receives private fuel benefits and are thinking of opting out, or are one of the 700,000 other recipients of a company car that don’t, you will want to make sure that you are recording your mileage correctly.

HMRC says:

“Car Fuel Benefit

The car fuel ‘scale charge’ is an all or nothing charge and will run automatically whenever fuel is provided for travel in a car to which a car fuel ‘scale charge’ applies unless the individual concerned establishes either:

  • That he is required to make good to the person providing fuel for private motoring (including travel between home and work) the whole expense incurred in its provision and in fact does so; or
  • That fuel is made available only for business travel.

To avoid a fuel benefit charge, full and accurate mileage records must be kept to show that all the fuel for private motoring is made good.  You can get further information concerning this at Chapter 13 of the booklet “Expenses and Benefits A Tax Guide” 480 (2013).  I would suggest the following records are maintained.

  • The date
  • Where the journey commenced
  • The place/companies visited
  • Where the journey ends
  • The start and closing mileage
  • Total business miles

It is not sufficient to show private mileage only, as this cannot be checked”

One option is the use of innovative GPS technology, which aids the maintenance of accurate records in a fraction of the time taken to complete ‘traditional’ paper based or online records.  Also, the driver is in control of the data and so ‘Big Brother’ issues associated with off the shelf telematics solutions is also managed.  The driver simply hides the detail associated with the private trips but still retains a full audit trail of the business trips to support their claim (see below).  Finally the system holds details of the trip reason and ‘friendly’ names etc. making it easier and easier to use.

Soon your business mileage recording could look like this:

For more information please contact:

 sales@fleetinnovations.com

 0845 600 6880

or visit our web site: www.peakmiles.com

 

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About the Author

Alex Baker
"The reasonable man adapts himself to the conditions that surround him... The unreasonable man adapts surrounding conditions to himself... All progress depends on the unreasonable man."

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