Jan 10, 2023

Fuel and Tax Benefits Explained

If you’re an employer providing company cars and fuel to your employees, there are certain National Insurance and reporting obligations which you’ll need to meet.

In this guide, we’ll be explaining everything you need to know about business fuel and tax benefits.

What Do You Need to Report and Pay on Company Cars and Fuel?

You are required to report company cars or fuel to HM Revenue and Customs (HMRC) if they are provided as part of a salary sacrifice arrangement, so long as they aren’t exempt and you may have to pay National Insurance on the value of the benefit.

How to Work Out the Value of Benefit of Company Cars and Fuel

You can calculate the value of cars and fuel using online tools from HMRC or your payroll software. You are also able to work out the value manually on the P11D working sheet 2. Use this method if the car was unavailable for at least 30 consecutive days during the tax year and if you were providing fuel for private use but have stopped doing this.

You can use advisory fuel rates to calculate mileage costs in some situations, such as if you reimburse an employee for fuel they have used for business travel.

You must pay employers’ National Insurance on some motoring costs if they are considered employee benefits, such as parking permits, drivers, toll bridge fees and congestion charges, however you do not pay it on running costs like servicing and insurance.

Salary Sacrifice Arrangements

If the cost of the cars and fuel amounts to less than the amount of salary given up, report the salary amount instead.

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What’s Exempt?

You are required to report the car or fuel to HM Revenue and Customs (HMRC) if they are provided as part of a salary sacrifice arrangement. However, if you provide the car and fuel in an alternative way, you may not have to report or pay anything.

To be exempt, you employees must use the car or fuel in one of the following ways:

Privately Owned Vehicles

You don’t have to pay anything on cars that your directors or employees own privately.

Vehicles Available for Business Journeys Only

You don’t need to pay anything on vehicles that are only used for business journeys, including journeys that are part of your employee’s duties e.g. a service engineer travelling to an appointment, as well as journeys an employee must make to get to a temporary workplace.

Please note that in order to be exempt, you must tell your employee not to use the vehicle for private journeys and make sure they do not.

Cars Adapted for an Employee with a Disability

Cars or other vehicles which have been adapted for an employee with a disability, including cars with automatic transmission if the employee’s disability means they need this, do not need to be reported. These cars are exempt if the only private use is for journeys between home and work as well as travel to any work-related training.

Fuel that Employees Pay For

You aren’t required to pay or report on fuel, including for private journeys, if employees buy the fuel for their own use or if you buy it and they pay you back during the tax year.

Pool Cars

You don’t need to pay or report on pool cars that are shared by employees for business purposes and typically kept on your business premises when not being used. If the pool car is used for any private trips, you will need to pay and report on it.

Cars Provided to Close Relatives

You don’t have to pay on cars provided to close relatives if you’re both an employer who is an individual e.g. a sole trader and you’re only providing the car to someone who works in your business because they are a close relative, not because they work for you e.g. you give your child who works for you a car as a birthday present.

Close relatives include:

How Can Fleetsmart Help with Paying Company Car and Fuel Tax?

Fleetsmart’s vehicle trackers can make paying and reporting on your company cars and fuel much more quick and easy.

By providing you with accurate data on all journeys used for business purposes, you can submit exact figures for fuel you are exempt from paying on when you are reporting, ensuring you aren’t overpaying tax.

Find out more about how Fleetsmart’s vehicle trackers can benefit your business by taking a look at our handy blog.