At first sight, company cars drivers whose private fuel costs are met by their employers may seem to be onto a good thing, but there is a nasty tax hit…
Enter, the Car Fuel Benefit charge.
When the current tax year ends, 5 April 2021, the illustration below demonstrates how a cash payment to an employer to payback any private fuel provided can create overall cash savings. This will not apply to all company car drivers, but it is well worth checking to see if a repayment is possible.
Let’s say the following circumstances apply:
list price of your company car when new was £30,000
your employer pays for all your private fuel
CO2 emissions are 147 g/km, and
the car has a diesel engine, 2000 cc.
The 2020-21 benefit in kind charge for the use of the car (this is added to your taxable income for the year) is £10,200. This would cost a standard rate taxpayer £170 a month in Income Tax.
But then the provision of private fuel would trigger an additional Car Fuel Benefit charge of £8,330. This would cost a standard rate taxpayer an extra £138 a month.
As the title of this article suggests, it is possible to reimburse your employer for private fuel provided and avoid this Car Fuel Benefit charge completely. Here’s what you would need to do:
First of all, calculate your private mileage for the 2020-21 tax year. Estimates won’t do, you will need to create evidence, a mileage log for example.
Multiply this private mileage by HMRC’s Advisory Fuel Rate. The present rate per mile for a 2000 cc diesel car is 10p.
Armed with this information you can now do the sums. In the above example, if the driver’s private mileage was 5,000 miles during 2020-21, the amount that needs to be repaid to the employer is £500. That’s just £42 per month.
Which means, for an effective outlay of £500, the car driver – if a basic rate tax payer – will save £1,666 in tax (£8,330 x 20%). That’s an overall cash saving of £1,166.
If you are receiving private fuel from your employer, or indeed providing private fuel for your employees, it is well worth crunching the numbers to see if there is a cash advantage to repaying any private fuel.
There are deadlines to consider and we can help you with the math and the reporting processes required.
Final planning notes for employers
The car fuel benefit charge not only creates a tax charge for the employee it also creates a National Insurance charge for the employer. And so, allowing employees to repay their private fuel costs will also reduce your NIC costs. A classic win-win outcome.