We probably don’t need to remind you that the tax on private fuel for company cars is high. So much so, that for many employees, there is no tax advantage in claiming private fuel as a benefit. Of those that do claim, it can often lead to a tax charge and the employee having to reimburse the employer.
Take for example:
An individual whose private mileage is 560 miles a month, and who drives a 1900cc diesel engine car, the rate per mile to cover fuel charges, is 11p per mile. In this example the employee would have to repay £61.60 a month to the employer.
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. If the employee doesn’t make a repayment of private fuel, there would also be a £5,772 car fuel charge. Both these amounts would be added to the taxable income for the year. For a higher rate tax payer, the car fuel charge would cost £2,308.80 a year in additional tax (£5,772 x 40%). The equivalent of £192.40 per month.
In this example, the employee would be £130.80 per month (£192.40 – £61.60). better off by repaying the private mileage.
Employers would also benefit as they will no longer be subject to a National Insurance charge on the amount of the car fuel benefit. In the above example, it would reduce NIC costs by £796.54 (£5,772 x 13.8%).
It is worth crunching the numbers. Obviously, the lower your private mileage, the more likely a repayment system will save you money, but you will need to take action before the 5 April 2017.
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