The Fuel Card Explained
Company cars usually come with a fuel card but quite often this can cost you more money than actually paying for your own fuel.
If you use your company car and fuel card for both business and personal use, you will be liable to Benefit In Kind (BIK) tax on both.
We previously discussed Company Car BIK. In this article we will focus solely on the Fuel tax implications.
What is company car fuel benefit?
If you receive a company car and your employer pays for your personal fuel you will be charged a BIK tax. It works in much the same way as company car BIK tax.
As HMRC regards this as free fuel the tax will need paid on it. Meaning it’s not free for you!
How much will I pay?
This is where most drivers get confused as they aren’t sure what they’re paying and fall in to the trap of believing it’s free fuel. Which it isn’t!
To calculate how much tax you’ll pay, you need to know the P11d value of the car, the Co2 emissions and your income tax bracket. There are a number of websites with calculators that can work this out for you.
Here’s an example…
Based on a VW Passat Saloon 1.6TDI SE Nav DSG.
Focusing on the 2020/21 tax year, we can see the P11d value of the car is £24,500 and the BIK Percentage Charge is 35%.
This percentage relates to the Co2 emissions for the car – 144g/km. If it emits more Co2’s the % would be higher and vice versa. The online calculators will show you the % tables for this.
The Benefit in Kind value is worked out as follows –
£24,500 x 35% = £8,575
If you are in the 20% income tax bracket you can work out your annual tax liability as follows –
£8,575 x 20% = £1,715
A 40% income tax earner can do the same equation by multiplying by 40%. The tax will be double the amount at £3,430.
The basic income tax rate (20%) ranges from £12,500 to £50,000 pa (at the time of writing).
If for example you earn £45,000 and have a fuel card with a BIK value of £8,575 this puts you into the higher rate by £3,575.
What this means is that the first £5,000 is charged at 20% and the remaining £3,575 is charged at 40%. This gives you an annual BIK tax of a figure in between the examples above.
So, is it worth it?
Referring to the above example... If you are spending less than £1,715/yr (£142.92/m) on private fuel then probably not. This is the fuel you use outside of working hours and includes commuting.
If you have a long commute to work, do a lot of personal miles and spend more on fuel than the BIK amount, then the fuel card is worth it.
It will likely make more sense for someone in the 20% income tax bracket than the 40%, but all of it can depend on the car you drive. A smaller car will usually have lower tax implications as it will have a lower P11d value and Co2 emissions.
If you’re a 40% earner, it’s likely you’ll have a more expensive company car emitting higher Co2’s; which in turn makes the fuel card less attractive for you.
Can I refuse a fuel card?
Technically yes but you would need to discuss this with your employer. Some companies will not provide a fuel card and you charge back business mileage; meaning you only pay for your personal miles.
Vehicles can be fitted with trackers to monitor mileage outside of working hours. This can give a more accurate calculation of what is deemed to be business or personal fuel usage.
In these instances you will not get taxed for your fuel as only business mileage is paid for, not personal miles.
What alternatives are available to me?
Hybrid and Electric Vehicle (EV) technology is advancing quite rapidly. Full EVs can be a wise choice for the company car driver as they are zero emission cars.
In the 2020/21 tax year the vehicle BIK for EVs is Zero. As the car runs on electric there is no need for a fuel card. The savings can be MASSIVE for the driver!
Speak to your employer first. Find out what options are available regarding company cars or car allowances and what they can offer in regards to covering business and personal mileage.
Ask for examples showing what tax you will pay for each scenario.
Also, we’re here to help!
For any queries regarding company cars and BIK tax please give us a call and we can advise on smarter choices that will save you a lot money.
Our tagline is #DriveSmart – we will help you do just that!