Using the Car Fuel Rates
Employers providing company cars and fuel benefits to employees, company directors managing vehicle benefits, and HR and payroll teams handling fuel benefits.
Clarifying how to calculate the taxable fuel benefit for company cars, how to apply
HMRC’s advisory fuel rates for different vehicles, and the reporting requirements for fuel benefits.
Correctly calculating and reporting fuel benefits ensures compliance with tax regulations, avoiding penalties and incorrect P11D reporting. Incorrect fuel benefit calculations can result in additional National Insurance liabilities and penalties.
How to Calculate the Taxable Fuel Benefit for Company Cars
The taxable fuel benefit for company cars is calculated based on the fuel provided for private use. Key considerations include:
- The advisory fuel rate set by HMRC, which is used to calculate the fuel benefit based on the vehicle’s CO2 emissions and fuel type (petrol, diesel, or electric).
- The list price of the car, including VAT, and the car’s CO2 emissions determine the tax rate applied to the fuel benefit.
- If the car is used exclusively for business purposes, no fuel benefit applies. Personal use triggers the taxable benefit.
The correct fuel rate should be applied to ensure accurate calculation of the taxable benefit for employees who use company cars for personal purposes.
Using Advisory Fuel Rates to Avoid Taxable Benefits
HMRC’s fuel rates also known as advisory fuel rates are intended to reflect average fuel costs and are updated quarterly. These rates only apply to employees using a company car.
The rates can be used either by employers who reimburse employees for business travel in their
company cars or where employees are required to repay the cost of fuel used for private travel.
HMRC will accept that there is no taxable profit and no
Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.
Employees can also use the advisory fuel rates to repay the cost of fuel used for private travel. This is the easiest way to ensure that no fuel benefit charge (for private journeys in a company car) is payable. However, the fuel benefit charge will still be payable if it cannot be demonstrated to HMRC that the driver of the car has paid for all fuel used for private journeys, this includes commuting to and from work. To ensure that this does not occur employees will need to keep a log of private mileage.
How to Apply HMRC’s Advisory Fuel Rates for Different Vehicles
HMRC publishes advisory fuel rates that employers use to calculate the taxable fuel benefit. These rates are based on the car’s fuel type and CO2 emissions. Employers should:
- Ensure the correct fuel rate is used based on the car’s make, model, and fuel type.
- Apply the fuel rate to calculate the fuel benefit charge for the employee.
- Recalculate fuel benefits if there are changes in the car’s CO2 emissions or fuel type.
For example, electric vehicles (EVs) will have different fuel rates compared to petrol or diesel cars, and this difference affects the taxable benefit.
Reporting Requirements for Fuel Benefits
Employers must accurately report fuel benefits on the
P11D form for each employee who receives company car fuel for personal use. Reporting includes:
- The value of the fuel benefit based on the appropriate fuel rate and CO2 emissions.
- P11D(b) reporting for the employer’s Class 1A National Insurance obligations on the fuel benefit.
- For mixed-use vehicles, employers must track the proportion of business and personal fuel use to calculate the benefit accurately.
Failure to report fuel benefits accurately can result in penalties, incorrect P11D reporting, and additional National Insurance charges.
Real-World Application
Real-world examples where employers need to manage fuel benefits include:
- Employers providing fuel reimbursement for company cars and ensuring the correct fuel rates are applied for personal use.
- Correctly applying HMRC’s fuel rates for different types of vehicles, including electric vehicles, and understanding the implications for tax calculations.
- Ensuring compliance with P11D reporting requirements for taxable fuel benefits.
Employers must ensure that their payroll systems can accurately track and report fuel benefits according to these rules.
Risks and Compliance Considerations
Failure to correctly calculate or report fuel benefits can lead to:
- The fuel benefit becoming a taxable benefit when it shouldn’t be.
- P11D reporting issues, which can lead to penalties for inaccurate reporting.
- Increased Class 1A National Insurance liabilities for the employer if fuel benefits are misreported.
Employers should carefully track the use of company cars and ensure proper calculation and reporting of fuel benefits to avoid these risks.
