Company car users - changes to tax free fuel rates 

HMRC regularly publish approved ‘fuel only’ rates for company car users and the last updates, published in July 2010, have once again been updated with effect from 1 December 2010, this time with an increased risk for drivers of being caught by the fuel scale benefit.

The ‘fuel only’ rates will apply if you are provided with a company car by your employer and you either claim a mileage allowance from your employer, solely for the cost of fuel used on business journeys, or you repay your employer for fuel used on private travel (including that between your home and normal workplace). By using these approved rates you have certainty that you are claiming no more than the true cost of fuel used on business journeys and, as a result, will not be taxed on a ‘fuel benefit’.

However, if you have been either claming more than the HMRC rates for business mileage or repaying less for private mileage there is a risk that you may be caught by the fuel benefit scale charge, instead. HMRC’s view is that fuel for private travel is provided by the employer and, therefore, the car driver should be 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 if you have paid a few pence less than the official rate for your private travel you may be taxed on the full fuel scale benefit; this could add up to £3,150 to your annual tax bill. Employers would also be hit with extra Employer National Insurance on the fuel benefit.

The new rates effective from 1 December 2010 are now as follows (previous rates shown in brackets): 

Engine size        Petrol       Diesel       LPG

1400cc or less     13p (12p)    12p (11p)     9p (8p)
1401 to 2000cc    15p (15p)    12p (11p)   10p (10p)
over 2000cc          21p (21p)    15p (16p)   15p (14p)

Therefore, if you currently repay your employer for fuel used on private travel, you need to increase your payments immediately (unless using petrol cars over 1,400cc or LPG cars between 1,400cc and 2000cc). Equally, those claiming business mileage from their employers can now claim additional amounts where appropriate.

However, drivers of diesel cars over 2,000cc should immediately reduce the amounts they claim from their employer, or the amount they pay back for private travel.

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.

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 speak to your usual UHY contact.