Where an employer pays for all fuel used by a company car, regardless of if it’s for business or private use, there is a statutory fuel scale benefit charge, as the company car benefit tax charge doesn’t cover fuel provided for company vehicles.
The cash equivalent of the benefit each tax year is multiplied by a percentage, depending on the car’s CO2 emissions which reveals the total of the benefit charge.
Sometimes a company may pay for all fuel, with employees reimbursing the amount spent on private use. As long as the exact amount is paid back, then employers do not have to pay anything to HMRC or report on transactions.
No fuel benefit charge arises where the company doesn’t meet business fuel costs, but pays a business mileage allowance. However, the mileage allowance must not be greater than the cost of fuel used for business travel.
If the mileage allowance is considered excessive, but is only paid for actual business travel, then the ‘profit element’ is chargeable to tax in the normal way. However, a car fuel benefit charge does arise in cases were the payments to the employee cover personal use such as travel between home and work.
HMRC do publish the rates that can be used by employers who are paying their employees the cost of fuel for company cars, hybrid cars are treated as petrol or diesel cars.
The rates correct as of 1 June 2020 are:
|1400cc or less
|1600cc or less
|1401cc to 2000cc
|1601cc to 2000cc
The guidance given by HMRC for fuel-only mileage rates for company cars confirm that employers do not have to use advisory fuel rate. However, if an employer wants to use them, then they only apply where the employer:
- reimburses employees for business travel in their company cars; or
- requires employees to repay the cost of fuel used for private travel in those company cars.
Where employers pay more than the relevant advisory fuels rates, and payments aren’t considered an actual reimbursement, then the excess paid is taxed, meaning it is subject to employees’ and employers’ National Insurance Contributions.
Are there any measures during Coronavirus?
Employers that have employees using company cars may agree to refund the fuel costs using advisory fuel rates where employees are completing volunteer work. These refunds are classed as a benefit and employers will have to settle tax and NI contributions on the employee’s behalf – using a PAYE Settlement Agreement.
HMRC have advised that the employer may agree to fund the cost of fuel for volunteer mileage related to coronavirus, but it should not be taken into account for the purposes of the car fuel benefit charge for company cars.
What about electric cars?
There has been the introduction of an Advisory Electric Rate for electric cars, with the current rate setting at 4p per mile.
It’s also important to consider than electricity is not considered as a fuel for car fuel benefit purposes.
Furthermore, no taxable benefit arises for costs relating to the provision of electricity where an individual is issued workplace facilities for charging a battery of a vehicle, if the following conditions are met:
- the charging facilities must be provided at or near an employee’s workplace
- charging must be available to either all the employer’s employees generally, or all the employer’s employees generally at the employee’s workplace
- charging facilities must be for a battery of a vehicle in which the employee is either the driver or a passenger.
The benefit will remain taxable if it’s offered in conjunction with an optional remuneration arrangement.
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