CAR fuel benefit tax is a tax charged for taking free fuel for your company car.
So if you are a company car driver and your employer pays you fuel for your private use as well as your business use, then car fuel benefit tax applies.
Is it worth taking ‘free fuel’?
- Although the idea of being given ‘free fuel’ is appealing, often the cost of receiving the fuel in car fuel tax is greater than the actual cost of the fuel itself.
- And, of course, for an employer, you not only get to pay the fuel – it all the fuel duty and VAT included – but you pay further tax on top for supplying the benefit in the form of Class 1A National Insurance contributions.
- Check if taking free fuel is worth it with our Free Fuel Benefit Checker
Similarly, if you are an employer and you want to give your employees ‘free fuel’ for their own private use, then your employees will get charged car fuel benefit tax.
You, the employer, will also get charged NIC on the employee’s car fuel benefit tax.
If you are an employee and you take free fuel for your company car for part of the tax year, and then free fuel provision is stopped, the fuel benefit tax will be charged proportionately. For more on this see HMRC manual Car fuel benefit: reduction if fuel withdrawn and not reinstated.
Can I avoid paying car fuel benefit tax?
Yes, you can.
The easiest way to ensure no car fuel benefit tax is payable is by using the government’s company car business mileage rates, which are known as Advisory Fuel Rates – or AFRs.
If you are a driver with, say, a fuel card that covers all your fuel including private mileage, then you can repay the private element of your mileage using the AFR rate for your car.
You will need to keep a record of your business and private mileage. For more on using AFRs, click here.
What about mileage in a private car?
Car fuel benefit tax does not apply for mileage in a private car used on business.
Employers can reimburse drivers for their business mileage in a private car by using the tax-free AMAP rates. These are 45p per mile for the first 10,000 miles, dropping to 25p thereafter.
How does car fuel benefit tax work?
- Car fuel benefit tax is charged using a fuel benefit charge multiplier.
- For 2018/19 fuel benefit charge multiplier is £23,400.
- You then take the CO2 emission banding of your company car – say 27% in 2018/19 for a car with CO2 emissions of 130g/km – and multiply the banding by the fuel benefit charge multiplier: 27% x £23,400 = £9665
- You then multiply this amount by your marginal rate of tax – 20% or 40% x £9665 = £1993 (20%); £3866 (40%)
- But beware – the CO2 emission bandings for company cars change each year, so the amount of fuel benefit tax you pay rises each year