Company Fuel Tax Explained in Simple Terms

Company Fuel Tax Explained in Simple Terms

Getting a company car is often seen as a massive perk of a job and as such some employers choose to offer it as part of an employee’s employment package. So it is no wonder that fleet cars now account for over 60% of new car sales in the UK and for around one million new car registrations each year.

However, before you jump in and sign up for a company car, it is important you understand the tax implications. One of the most important things to consider is how much company car fuel tax this will result in you paying and whether having a company car is worth it.

Who has to pay?

Fuel benefit tax must be paid by employees who get all of their fuel paid for on their company vehicle. This is because any private mileage done in the car, which includes travelling to and from a place of work, is classed as a benefit in kind and is therefore taxable.

This means that while having a company car with all of your fuel paid for may initially seem like a benefit, in some cases the fuel benefit tax can actually work out greater than the cost of the fuel you would use privately.

white company car driving on the road

How is it calculated?

Calculating your company car fuel tax can seem daunting and complicated, however, once broken down the process is relatively straightforward.

The amount of fuel benefit tax is fixed every year by the government; in 2019/2020 it has been set at £24,100.

To work out the company car fuel tax you will pay, you must first multiply this number by your car’s CO2 percentage band rating.

The resulting figure must then be multiplied by your own tax band rating (20% or 40%) to find out the amount of fuel benefit tax you will pay for the year.

For example:

Benefit Charge Multiplier Amount 2019/2020 = £24,100

Petrol engine car producing 125 g/km CO2 = 30% band rating

So:

30% x £24,100 = £7,230

Then:

20% (average earner tax rate) x £7,230 = £1,446 per year to pay in company car fuel tax

40% (higher earner tax rate) x £7,230 = £2,892 per year to pay in company car fuel tax

NB: The fuel benefit charge like the CO2 emission banding is set by the government each year. This means it is important you get up to date figures for both aspects before you start your calculations.

Who is exempt?

Company car fuel tax does not need to be paid if the car is solely used for business purposes. Employees who have a disability are also exempt from paying fuel benefit tax if the only private use of the vehicle is travelling to and from a single place of work or travelling to work-related training.

Company car fuel tax does not need to be paid if you pay for your own private mileage fuel or if you pay your employer back during the tax year for any private fuel that has been used.

Finally, company car fuel tax does not need to be paid on pool cars which are shared by employees, used only for business purposes and are kept on business premises.

electric car parked alongside a park

Can I pay less fuel benefit tax?

To reduce the amount of fuel benefit tax you pay you can:

1. Choose a car with lower CO2 emissions as it will have a lower percentage band rating. This then reduces the overall amount of fuel benefit tax to pay.

2. Pay your employer back for any private mileage so that you don’t need to pay any fuel benefit tax. Be aware that if you do this, you must keep an accurate record of all business and private mileage covered.

Hopefully, this article has helped you understand company fuel tax and whether having a company car is actually worthwhile for your circumstances.

If you are keen to start then search for the perfect company car for you, then you’ll be pleased to learn we stock a comprehensive range of lease vehicles.

So whether you are looking for a low emission vehicle to reduce your company car fuel tax or want a car that stands out from the crowd, we’re confident you’ll have no problems finding a suitable car.

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