Where an employee with a company car is provided with fuel for their own private use by their employers, the default position is that the employee is required to pay the car fuel benefit charge. The charge is determined by reference to the CO2 rating of the car, applied to a fixed amount, currently £23,400. For example, a vehicle with a CO2 rating of 150g/km would create a taxable benefit of £7,254. The car fuel benefit charge will increase to £24,100 for the 2019-20 tax year.
Crunch the numbers – which is lower, tax on the benefit or repay private fuel used?
The car fuel benefit charge is not applicable when the employee pays for all their private fuel, this includes commuting to and from work. Employees should keep a log of private mileage and can then use the published advisory fuel rates to repay the cost of fuel used for private travel back to their employer. In this case, HMRC will accept that there is no car fuel benefit charge and the employee will save the Income Tax charge on the private car fuel benefit. It will usually be much cheaper to repay your employer for private fuel rather than to pay the Income Tax charge especially if private mileage is relatively low.
The advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. However, the use of the advisory fuel rates is not binding if the employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile. There is also a lower advisory rate if the company car is fully electric.