Amid the uncertainty, however, one clear point stands out: if you have a company car, avoid being hit for the additional fuel benefit charge. This additional tax charge is imposed unless it can be clearly shown that the driver has paid for all fuel used for private journeys in the year. Commuting to work is a private journey for tax purposes.
There are now almost no circumstances in which it makes good tax sense for the employer to pay for fuel for private journeys: the additional taxable benefit has risen year by year and is now at a penal level.
The taxable fuel benefit is calculated by multiplying a fixed amount by the same “appropriate percentage” that is used to work out the company car benefit. The fixed figure for the current tax year is £20,200. The percentage varies according to the car’s emissions figure but, for example, a diesel car with CO2 emissions of 157g/km will have a figure of 25%.
Assume that such a car is driven by Debra, a family company director. If the company meets the fuel cost of even the occasional private journey, Debra will have to pay tax on £5,050 for the privilege (on top of the taxable benefit for the car itself). If she is paying tax at (say) 40%, the annual tax cost is therefore £2,020. Is that really a bad deal?
Almost certainly, but it needs a little unravelling. Assume that diesel costs £1.40 per litre and that the car achieves 42mpg. One gallon is 4.546 litres.
Suppose that Debra covers a higher-than-average 2,000 private miles per month. At first glance, she is better off paying the tax (of £2,020) than the fuel cost (which works out at £3,637). But the reality is different, because if Debra pays for the fuel the company saves the £3,637, plus a further £697 in National Insurance. These total savings of £4,334 can be paid out as additional salary (net of employer NIC) of £3,808. Once Debra has suffered tax (40%) and NIC (probably 2%), she can have additional net pay of £2,209.
Add this to her tax saving of £2,020 and she has £4,229 in her pocket to cover the fuel cost of just £3,637.
So Debra can pay for her own private fuel and still be better off by nearly £600. At lower levels of private mileage, the position is even more clear cut.
Practical Tip :
In reality, the fuel benefit cost is often incurred unintentionally, simply because the paperwork is not watertight. On a practical level, it is much safer for the employee to pay for all fuel initially. The employer can then reimburse genuine business mileage at officially approved rates.