Introduction to this document

Employer/employee company car fuel agreement

To avoid a tax charge arising where you provide an employee with fuel for their company car, have an agreement requiring them to reimburse the cost.

Fuel benefit charge

In addition to the company car benefit, a director or employee who is provided with a company car may be liable to a fuel benefit charge. This fuel benefit will arise on any free or subsidised fuel provided for private journeys.

How much is it?

When a company pays for fuel used in private journeys whether for a single journey or mulitple (e.g. five or 50,000 miles), the tax charge remains the same. The fuel benefit is calculated by taking the percentage used to calculate the car benefit and multiplying it by a set figure for the tax year. The set figure for fuel benefit for cars is £22,200 for 2017/18. Depending on the company car’s CO2 emissions, the annual tax bill for the employee could be over £3,000 with the employer having to pay up to over £1,000 in the corresponding Class 1A NI bill.

Avoiding the charge

To avoid the fuel benefit charge, employees must show that the company doesn’t meet the cost of any fuel for these private journeys. There are three ways to do this:

  • the employee pays for all fuel and only claims for the business miles driven at HMRC’s advisory fuel rates
  • the company pays for all fuel (usually via a fuel card) and the employee reimburses the company for the cost of fuel used for private journeys using HMRC’s advisory fuel rates
  • the employee pays for fuel in respect of business mileage for the number of miles as the employer has paid for fuel for private mileage.