Company Car Benefit in Kind

Should Employees Reimburse Private Fuel Costs?

Where a company car is provided for use by an employee or director there is a benefit in kind taxable on the employee based on the original list price of the vehicle multiplied by the CO₂ emissions percentage for that vehicle.

There is an additional benefit in kind where private fuel is paid for by the employer, which also needs to be reported on form P11d, unless the employer has arranged with HMRC to deal with the tax on the benefits via monthly payroll.

Crucially, if the employee doesn’t fully reimburse the employer for private mileage, a significant Benefit in Kind increase occurs. This is based on a notional list price of £27,800 multiplied by the car’s CO₂ emission percentage.

For a high-emission car (37% CO₂), this equates to a Benefit in Kind of £10,286. This translates to potential income tax of £4,114 for a higher-rate taxpayer – a substantial cost compared to fuel expenses.

Furthermore, the employer incurs Class 1A National Insurance contributions of £1,419 in this scenario.

That would be an awful lot of fuel!

HMRC Advisory Fuel Rates & Full Reimbursement

HMRC publishes quarterly advisory fuel rates (as of 1^st June 2024) to guide on appropriate reimbursement levels. These rates reflect recent fuel price fluctuations.

It’s important to remember that the Benefit in Kind treatment for private fuel is an ‘all or nothing’ situation. Incomplete reimbursement triggers the additional taxable benefit.

Encouraging employees to fully reimburse private fuel costs can significantly reduce Benefit in Kind tax liabilities for both the employee and employer. Consulting with an accountant can help ensure a company car policy that balances employee benefits with tax efficiency.

Folkes Worton LLP Chartered Accountants
Accounting for the Future