When it comes to company cars, fuel can be a complicated business. Whilst paying the company car benefit charge, tax is also owed on any fuel that the employer provides for private mileage. For 2016-17 the amount payable is calculated by multiplying the cars CO2 percentage by £22,200. For example, if CO2 is 28%, the benefit in kind will be £6,216. If the employee is a basic rate tax payer the tax cost is £1,234 and for a higher rate tax payer it is £2,486. Regardless of whether you use 2 litres of fuel or 2,000 litres the charge is the same.
If the employee decides to reimburse all of the private fuel costs back to the employer, the tax charge can be avoided. However you will need to keep on top of your mileage logs and receipts.
As an alternative, an employer can provide a tax free fuel allowance to the employee, but the employee must pay for all fuel used in the company car.
HMRC have published new advisory fuel rates per mile, applying from 1 September 2016, which are shown below.
An employee can use these rates to reimburse the company for private mileage to avoid the fuel benefit. Or the employer can pay these rates for business mileage to the employee where the employee pays for all the company car fuel.
If you have any queries, please call Michael Burgess on 01782 279615.