Having your company cover the cost of fuel might sound like a great perk — but is it really as beneficial as it seems?
In reality, the value of the benefit depends on how your company structures its fuel policy, the type of vehicle involved, and whether you reimburse any of the fuel used for personal journeys. Let’s break down what you need to know.
The Company Car Fuel Benefit
When an employer pays for all the fuel used in a company car, including personal journeys, it triggers a car fuel benefit charge.
This charge represents the value HMRC places on the private fuel provided by your employer, based on the car’s CO₂ emissions.
For the 2025/26 tax year, the calculation uses the same percentage as your car benefit charge, multiplied by £28,200.
To give you an idea:
- A low-emission car (1–50g/km CO₂) results in a taxable benefit of £846.
- A high-emission car (160g/km or more) results in a benefit of £10,434 — which means a tax bill of:
- £2,086.80 for basic rate taxpayers
- £4,137.20 for higher rate taxpayers
- £4,695.30 for additional rate taxpayers
On top of this, the employer pays Class 1A National Insurance at 15%.
Note: Hybrid cars are treated as petrol cars for this purpose, and even small petrol engines that simply recharge the electric battery can still trigger a taxable fuel benefit.
Avoiding the Tax Charge
Avoiding the charge might seem simple — the company just stops paying for private fuel. However, it’s not quite that straightforward.
The benefit applies whenever the company pays for any private fuel, unless the employee repays the full cost of that fuel to the employer.
If the employee only contributes part of the amount (even a fixed monthly sum), the full benefit charge still applies.
To make life easier, HMRC publishes Advisory Fuel Rates (AFRs), which are updated quarterly. These can be used in two main situations:
- When the company pays for all fuel and the employee reimburses the business for private mileage.
- When the employee pays for fuel and claims reimbursement for business mileage only.
As long as the reimbursement rate doesn’t exceed HMRC’s AFR, no taxable benefit arises and the employer avoids Class 1A NI charges.
A Practical Approach
Even with today’s higher benefit charges, it can sometimes still make sense for the company to pay for all fuel — especially if the employee repays the private use in full.
The key is to keep accurate mileage records so you can calculate whether this arrangement is tax-efficient after the end of the tax year.
A good strategy is for the company to pay for all fuel initially, then review the figures after the year ends. If it turns out the benefit charge would be more expensive than reimbursing private mileage, the employee can repay the full private fuel cost by 6 July following the tax year.
Having a formal agreement in place confirming how private use is reimbursed can help avoid disputes and ensure HMRC accepts the arrangement.
Final Thoughts
Company-paid fuel can sound appealing — but in practice, it often results in a higher tax bill unless handled carefully. Reviewing your fuel policy and tracking mileage accurately can make a big difference.
If you’d like help reviewing your company’s fuel arrangements or understanding how the benefit applies to you, contact Jon or the team at Jon Davies Accountants.
We’ll make sure your company fuel policy works in the most tax-efficient way possible.
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