Since the tax on private fuel provided with company cars is so high, many employers now have an arrangement whereby they no longer pay for private fuel. In this case, the employee must reimburse the employer for private fuel included in petrol bills paid by the employer. Otherwise, the employee may face a tax charge.
Consider the following example:
If your private mileage for April 2016 is 560 miles, and you drive a 1900cc diesel engine car, the rate per mile to cover fuel charges, as quoted in the latest rates published by HMRC, is 11p per mile. Accordingly, you should repay £61.60 to your employer. In order to exempt yourself from the car fuel benefit charge you must be able to demonstrate that the refund was actually made in the relevant tax year, in this example 2016-17.
Based on the above example, if the vehicle’s list price when new was £25,000, and the car benefit charge rate was 26% (based on a 130g/km CO2 rating) the benefit in kind charge for the year would be £6,500. With no repayment of private fuel, there would also be a £5,772 car fuel charge. Both these amounts would be added to your taxable income for the year. If you were a higher rate tax payer the car fuel charge would cost you £2,308.80 a year in additional tax (£5,772 x 40%). This amounts to £192.40 per month.
If your actual private mileage proved, on average, to be 560 miles a month, you would therefore save £130.80 per month (£192.40 – £61.60).
It is worth crunching the numbers. Obviously, the lower your private mileage, the more likely a repayment system will save you money.