Avoiding tax charge for private fuel

If you are provided with a company car and your employer pays for your private fuel you may want to consider the options set out below which may reduce the overall tax cost of the arrangement.

At present if you receive any free private fuel for your company car you will be taxed as a benefit in kind according to a fixed rate calculation. For the tax year to 5 April 2010 this is £16,900 multiplied by a percentage based on CO2 emissions or in some cases the size of the engine. For CO2 emissions in excess of 220 g/km this can be as much as 35%. For a 40% rate tax payer this would add £2,366 (£16,900 x 35% x 40%) to their annual tax bill.

Unless your private motoring is exceptionally high this may be a tax cost that is entirely avoidable at much lower cash cost.

For instance HMRC allow you to reimburse your employer for your logged, personal mileage at an agreed rate - the details of current rates are added as a footnote to this article. If say your private mileage this tax year was 2,000 you would need to repay £400 (2,000 miles x 20p). Or you could pay the tax on the fuel benefit £2,366...

The key point is that it is worth crunching the numbers to see if you would be better off reimbursing your employer for private fuel rather than accepting the tax charge.

This type of arrangement also has benefits for the employer who will see a reduction in Class 1A National Insurance contributions due to the elimination of the car fuel benefit charges.

From the 1 December 2009 the advisory fuel rates are:(figures in brackets applied from 1 July 2009)

Up to and including 1,400 cc: petrol 11p (10p); diesel 11p (10p); LPG 7p (7p)

1,401 to 2,000 cc's: petrol 14p (12p); diesel 11p (11p; LPG 8p (8p)