This site uses cookies to improve your browsing experience and analyse use of our website. By clicking ‘I accept’ you agree and consent to our use of cookies. You can find out more about our cookies here. Find out more

Is Your Employer Still Paying For Your Private Fuel?

Stuart Datlen

It is worth repeating an article we first published March 2016 that highlighted the cash benefit to company car drivers and their employers, of reimbursing the cost of fuel provided for private motoring. The rates have been updated for 2016-17.

Since the tax on private fuel provided with company cars is so high, many employers now have an arrangement whereby they no longer pay for private fuel. In this case, the employee must reimburse the employer for private fuel included in petrol bills paid by the employer. Otherwise, the employee may face a tax charge. 

Consider the following example:
If your private mileage is currently 560 miles a month, and you drive a 1900cc diesel engine car, the rate per mile to cover fuel charges, as quoted in the latest rates published by HMRC, is 11p per mile. Accordingly, you should repay £61.60 a month to your employer.

Based on the above example, if the vehicle’s list price when new was £25,000, and the car benefit charge rate was 26% (based on a 130g/km CO2 rating) the benefit in kind charge for the year would be £6,500. With no repayment of private fuel, there would also be a £5,772 car fuel charge. Both these amounts would be added to your taxable income for the year. If you were a higher rate tax payer the car fuel charge would cost you £2,308.80 a year in additional tax (£5,772 x 40%). This amounts to £192.40 per month.

If your actual private mileage proved, on average, to be 560 miles a month, you would therefore save £130.80 per month (£192.40 - £61.60).

Employers will also benefit as they will no longer be subject to a National Insurance charge on the amount of the car fuel benefit. In the above example, it would reduce NIC costs by £796.54 (£5,772 x 13.8%).

It is worth crunching the numbers. Obviously, the lower your private mileage, the more likely a repayment system will save you money, but you will need to take action before the 5 April 2017.  

Car fuel advisory rates from 1 December 2016
From 1 December 2016, the advisory fuel rates have changed to:
1400cc or less: petrol 11p per mile, LPG 7p per mile
1401-2000cc: petrol 14p per mile, LPG 9p per mile
Over 2000cc: petrol 21p per mile, LPG 13p per mile

Diesel rates:
1600cc or less: 9p per mile
1601-2000cc: 11p per mile
Over 2000cc: 13p per mile

These rates can be used from 1 December 2016 to calculate the petrol content of mileage rates paid to employees, or as a basis to repay private petrol provided by employers for the use of a company car (see previous article).