Tax is chargeable on the cash equivalent of the benefit of the provision of free fuel for private motoring in a company car.
If the employee is required to make good to his employer the cost of all company fuel used for private purposes, and in fact does so, the charge is reduced to nil. From 2017/18 onwards the payment for private use must be made on or before 6 July following the tax year for which the charge arises. Previously it had to be made in the tax year in question or without unreasonable delay thereafter.
HMRC will accept that there is no fuel charge where the employer uses the appropriate rate per mile from the table below to work out the cost of fuel used for private travel that the employee must make good or to reimburse the employee for business travel in his company car. These advisory rates are not binding where the employer can demonstrate that employees cover the full cost of private fuel by making good at a lower rate per mile.
The employer can reimburse business mileage at rates higher than the advisory rates if they can demonstrate that the fuel cost per mile is higher. If the employer cannot demonstrate that fact, there is no fuel benefit charge if the payments are solely for business mileage, but the excess will not be an allowable deduction in computing the employer’s profits.
View HMRC’s advisory fuel rates
The employee uses his/her car for business travel
If an employee (including officeholders) uses his/her own car for ‘business travel’ then the employer can make mileage allowance payments up to the ‘approved amount’ and these payments will not be taxable on the employee.
The ‘approved amount’ for this purpose is obtained from the formula: M x R
Where M is the number of business miles traveled by the employee (other than as a passenger) using the kind of vehicle in question, in the tax year; and R is the rate applicable for that kind of vehicle. The rates are as follows:
Per each of the first Per each mile over 10,000
Cars and vans 45p 25p
Motorcycles 24p 24p
Cycles 20p 20p
The 10,000-mile limit is applied by reference to business travel by car or van in all ‘associated employments’ (broadly defined as where the employments are under the same employer or the employers are under common control). These rates may alter in the future.
It is advisable to check allowances paid as some employers pay passenger payments. This is not reportable to HMRC. The allowance is available where an employee carries another employee in their own car or van on a business journey. The passenger payment is up to 5p per mile tax-free.
If the employer makes mileage allowance payments of less than the amounts shown above to the employee, then the employee (or officeholder) is entitled to ‘mileage allowance relief’. The amount of the relief is the excess of the approved amount over any mileage allowance payments. The employee (or officeholder) would normally claim this ‘mileage allowance relief’ on his/her self-assessment tax return in the relevant tax year.