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Company car users – further changes to tax free fuel rates from 1 December 2011 (LPG only)

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 September 2011 and have now been amended with effect from 1 December 2011. However, the only change to the rates announced in September 2011 is a reduction in the tax free rate for drivers of LPG fuel cars of less than 1401cc.

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. In the past when rates have changed, HMRC have said they would not pursue this line but no such reassurance has been given for some time. There is, therefore, a risk that company car drivers who might have paid a few pence less for their private travel 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 December 2011 are as follows (previous rates shown in brackets for LPG cars);

If you drive your own LPG fuel car with engine size between 1600cc and 2000cc and pay your employer for fuel used on private travel, you may now reduce the amount you repay your employer.  Equally, those claiming business mileage from their employers should now reduce the amount claimed.

If you are in any doubt as to the application of these changes to your circumstances, or wish to discuss the implications further, please do not hesitate to contact your usual UHY partner.

These changes do not affect employees or Directors who use their own cars for business travel, nor company car drivers whose employers pay for all of their fuel. In the future the rates will be reviewed quarterly.

Published on 30 November 2011 by

Mike Crellin