Repay your private fuel costs

Directors and employees may be flattered and pleased that their employer pays for all their company car fuel, including fuel used for private purposes.

They will be less enthused when a Car Fuel Benefit appears on their annual tax statement. This tax charge is based on the CO2 efficiency of your vehicle.

For example, consider Andy, who has the use of a company car with a CO2 rating of 155g/km. Based on this number, Andy will incur a Car Fuel Benefit charge for 2018-19 of £7,488. This amount is effectively added to Andy’s taxable income and will be subject to a tax charge at his marginal rate.

• If we assume Andy is a basic rate tax payer on all his income this will increase his tax by £1,497 in the tax year 2018-19.
• If Andy’s fuel benefit charge is taxable at the higher rate (40%) the charged will double to £2,995.

Andy uses his car primarily to visit customers across the UK, his annual mileage is 18,000, but very little is for private use; he uses a second family car for most of his private motoring.

Andy keeps a log of his business miles, and he records his car mileage each 5th April. By simple difference he calculates that his annual private mileage for 2018-19 is 3,250 miles.

Armed with this information, Andy approaches his employer and offers to repay the private fuel funded by the firm. He calculates the amount refundable by using published car fuel rates on the Gov.uk website. He uses petrol and the rate per mile published by HMRC is 15p per mile.

Andy writes out a cheque for £487.50 (3,250 x 15p) and the employer advises HMRC that private fuel has been repaid and no car fuel benefit charge applies for 2018-19.

Andy would have paid Income Tax at 40% on the fuel benefit – £2,995 for 2018-19 – so at a stroke he has saved himself a little over £2,500. Not a bad result for the inconvenience of keeping a mileage log and writing out a cheque.

Two further points to observe:

• Company car users have until 5 July 2019 to make restitution to their employers for the tax year 2018-19, and
• If the calculations do result in repaying the private fuel cost this will also save your employer a Class 1A NIC charge. In Andy’s case, this saved his employer £1,033.

If you presently benefit from private fuel provision by your employer, this is an exercise that is well worth undertaking for 2018-19 and subsequent tax years.

February 19, 2019

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