Taxflash: Mileage rates – March 2016

COMPANY CAR USERS – FURTHER CHANGES TO TAX FREE FUEL RATES FROM 1 MARCH 2016

HMRC regularly publish approved ‘fuel only’ rates which have, again, changed.

These rates apply if you are provided with a company car by your employer and you;

  • claim a mileage allowance from your employer solely for the cost of fuel used on business journeys, or;
  • repay your employer for fuel used on private travel – including that between your home and normal workplace.

If you use the approved rates, you have certainty that you are claiming no more than the true cost of fuel used on business journeys and so will not be taxed on a ‘fuel benefit’.

The rates last changed on 1 December 2015 and have now been amended with effect from 1 March 2016. Overall, the rates have reduced slightly for all vehicles apart from LPG fuelled cars less than 1400cc.

If you have been either claiming more for business mileage, or repaying less for private mileage, than the HMRC official rates, HMRC’s view is that fuel for private travel is provided by the employer. The car driver is therefore taxed on the fuel benefit scale charge, unless the car user meets the cost of all fuel used privately. There is, therefore, a risk that company car drivers who might have paid a few pence less for their private travel, or who have claimed more from their employer, than the official rate will be taxed on the full fuel scale benefit, which could add up to £2,500 to their annual tax bill. Employers would also be hit with extra Employer National Insurance on the fuel benefit.

The new rates effective from 1 March 2016 are as follows (previous rates, if different, shown in brackets);

Engine size   Petrol    Diesel        LPG
Petrol 1400cc or less 10p (11p)         –         7p
Diesel 1600cc or less          –    8p (9p)          –
Petrol 1401 to 2000cc  12p (14p)         –     8p (9p)
Diesel 1601 to 2000cc          –  10p (11p)          –
over 2000cc 19p (21p)  11p (13p)   13p (14p)

If you pay your employer for petrol used on private travel, you should now reduce the amount you repay your employer where the applicable rate has reduced. Equally, those claiming business mileage from their employers should reduce the amount claimed.

Where employees are paid mileage allowances rather than being reimbursed the cost of their fuel, the business can either account for a scale charge or claim input VAT on fuel for the actual business mileage, depending on whether the mileage allowances covers all mileage or just business mileage. Note that the new scale charge regime is based on CO2 emissions. Subject to a scale charge being accounted for where required, the business can reclaim input VAT out of the fuel element of the mileage allowance. The fuel rates are the same as in the table above and are treated as inclusive of VAT for reclaiming input VAT.

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Taxflash - March 2016