Many businesses find that instead of reimbursing drivers for fuel they pay for and use for business purposes it is easier to provide their drivers with a fuel card.
This allows the driver to fill up whenever needed without going out of pocket and waiting to be reimbursed, which is why drivers like it. It also has the benefit of providing your business with a trail that can be tracked and reported on.
Fuel tax is applicable whether your drivers use a company fuel card or are reimbursed for the cost of fuel.
What is Company Fuel Tax?
Similar to how you and your employee must pay tax on a car provided to them that can be used for personal journeys, there will also be a tax on the fuel they can use for personal journeys.
Driving to and from work is classed as personal travel under the government’s definition.
It’s important to note that even if drivers have the use of a fuel card or free fuel for part of the year they will have fuel tax applied for the full year.
For drivers there will be a company fuel tax and for the business it will be a Class 1A National Insurance Contribution (Class 1A NIC).
Who Does Company Fuel Tax Apply To?
Company fuel tax will apply to all drivers who tax a fuel card or allow the company to pay for fuel they use for personal journeys.
Businesses will not pay a company fuel tax but instead will need to make a Class 1A NIC for the fuel.
Who Does Company Fuel Tax Not Apply To?
There are some situations where drivers will be exempt from company fuel tax, and these include:
- If they pay for their own fuel.
- If the vehicle is only used for business purposes.
- A vehicle that is adapted for an employee with a disability may be exempt in certain situations. You can see full guidelines for when they will be exempt on the HMRC website.
- Tax will not be applied to pool cars as these are only used for business purposes and kept on company premises.
How is Company Fuel Tax Calculated?
For the amount you will need to pay on any fuel used by your employee you will need to know the value of the fuel provided to your employee that they use for personal travel and then pay a Class 1A National Insurance on this value.
You will also need to add any value to the P11D form.
What Do You Need To Do as a Company?
As a business, you will need to put in place a process for your drivers to advise you on personal travel and how much fuel they use for this that is paid for by the company. Once you have this process in place you can then calculate the Class 1A National Insurance amount payable on this.
Any fuel benefit that you provide to your employers will also need to be added to their P11D form. This will need to be done at the end of each tax year for any benefit you provide your employees with, including fuel.
Do Electric and Hybrid Cars Have Fuel Tax?
Full electric vehicles (EVs) do not use any petrol or diesel and so will not have any company fuel tax for them as drivers will not have any need for the fuel card.
However, a hybrid model has an electric motor and a combustion engine which will use either petrol or diesel. Any fuel that you provide for your drivers to use in this vehicle will still be subject to company fuel tax.
Company Fuel Tax for Drivers
For the amount your employees will need to pay they’ll need to know the Benefit in Kind (BIK) rate.
This is then multiplied by a fixed sum which is currently £24,600 for the tax year 2021/2022.
The final step is to multiply this by the employee’s personal tax margin to work out the amount of fuel tax they will need to pay over the current tax year.
You can direct employees to this page for our driver's guide to fuel tax.
If you'd like to find out more about the different fuel types, CO2 emissions and everything else that can affect the tax you pay for employee car benefits head back to our guides homepage.