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Does your employer still pay for your private fuel?

AS we approach the end of yet another tax year, it is worth considering the cash benefit to company car drivers and their employers of reimbursing the cost of fuel provided for private motoring.

Since the tax on private fuel provided with company cars is so high, many employers have an arrangement whereby they no longer pay for fuel used for private journeys. In many cases this means that the employee must reimburse the employer for all private fuel included in petrol bills paid by the employer.

Consider the following example:

If your private mileage is currently 560 miles a month, and you drive a 1900cc diesel engine car, the rate per mile to cover fuel charges as quoted in the latest rates published by HMRC is 11p per mile. Accordingly, you should repay £61.60 a month to your employer.

Based on the above example, if the vehicle’s list price when new was £25,000, and the car benefit charge rate was 28 per cent (based on a 130g/km CO2 rating) the benefit in kind charge for the year would be £7,000. With no repayment of private fuel, there would also be a £6,328 car fuel charge. Both these amounts would be added to your taxable income for the year. If you were a higher rate tax payer the car fuel charge would cost you £2,513.20 a year in additional tax (£6,328 x 40 per cent). This amounts to £210.93 per month.

If your actual private mileage proved, on average, to be 560 miles a month, you would therefore save £149.33 per month (£210.93 – £61.60).

Employers will also benefit as they will no longer be subject to a National Insurance charge on the amount of the car fuel benefit. In the above example, it would reduce NIC costs by £873.26 (£6,328 x 13.8 per cent).

It is worth crunching the numbers. Obviously, the lower your private mileage, the more likely a repayment system will save you money, but you will need to act before the 5 April 2018.

For advice on this or any other tax enquiry, contact Moore Stephens Tax Partner Pete Simons on 01604 654254.

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