There are many benefits to using fuel cards but one of the most significant is the broader scope it affords fleet owners and the insight it gives into how money is spent on fuel.
It’s important to know both how your resources are distributed and how much tax is owed, as this is a critical element of running a fleet. Pay too much and you cut your margins short but pay too little and you risk finding yourself in hot water.
Businesses also need to be aware that if their employees are using a company car and offered free fuel in personal hours then you'll need to calculate how much company car fuel benefit is owed. Although drivers won't need to pay for their fuel, they're still obliged to pay this tax, unless your business also chooses to subsidise this.
The company car fuel benefit is worth it for drivers who regularly travel long distances as they'll be able to save a significant amount of money on fuel but if you don't spend that much on fuel, you may pay out more with this benefit.
If you're an employer, you'll be paying for the full cost of your driver's fuel plus contributing a significant amount of National Insurance, so you'll need to determine if you can help limit costs by using fuel cards.
As an employer, ensuring the members of your team who use your fuel cards know what they can and cannot do with them will save you from additional work further down the line. The best way to avoid unplanned expenses is to understand how employee perks and benefits impact tax liabilities.
Tax rates and calculation
If your business supplies company cars or free fuel to your employees for private use, including for commuting, then you'll need to work out the taxable value so you can report it to HMRC. You can use HMRC's company car and fuel benefit calculator to find out how much tax you might need to pay. This is based on a number of factors including:
- Price of the vehicle
- Fuel type
- BiK percentage rate
- Your income tax band
Company car tax rates are usually adjusted every April, however many businesses are struggling due to the current cost-of-living crisis, so the current rates have been frozen until April 2025.
Previously, EV drivers were not required to pay Benefit-in-Kind tax at all but this has now risen to 2% and will remain at this rate until 2025. This means that drivers who choose an EV for their company vehicle can save thousands of pounds more than drivers that choose diesel.
Fuel cards, tax implications & Benefit in Kind
A Benefit in Kind is a benefit given to an employee that isn’t included in their regular salary; this can be anything from cash bonuses and pension benefits to relocation or childcare expenses. As an employer, you may need to report any expenses or benefits that your employees receive, as you may be required to pay taxes on them.
Regardless of the perks or benefits, you offer your employees, using a fuel card for business purposes doesn’t fall under the category of a taxable benefit. However, if an employee uses one of your cards to pay for the fuel they’ve used for personal travel, then you and the company would have to pay tax charges. If this were the case, the business would have to pay users National Insurance contributions based on the value of the fuel used for personal use.
While these complications can sound like a lot of extra work, they’re easily avoidable and, with proper planning, can be steered clear of. It’s essential that cardholders are aware of what is defined as personal travel and what constitutes travelling for work. Confusion may arise when including the commute to work, which unfortunately isn’t considered travel for business.
Should employees use fuel cards to pay for personal travel, it may be prudent to request they pay back any expenditure to the business.
VAT & fuel cards
VAT can be reclaimed on fuel used for business journeys, however, if fuel is used for private mileage then VAT must be paid in full. In addition, those using a fuel card for personal use can face a fuel benefit charge that considers numerous factors, such as the type of fuel paid for and the carbon emissions of their vehicle. HMRC requires a clear record of business and private mileage for all fuel card users so they can guarantee you’re meeting your tax liabilities.
If you don’t pay a fixed rate under the Flat Rate Scheme then HMRC suggests that you handle your VAT in one of three ways:
- Reclaim all the VAT on both business and personal trips, ensuring that you pay the correct fuel scale charge for your vehicles. This option is often best if you don’t have detailed mileage records as it saves you from making an error on your estimations.
- If you don’t have detailed records, but your business mileage is so low that the fuel scale charge would be higher than the VAT you can claim, you may be better off choosing not to reclaim any VAT.
- If you do have detailed mileage records of the fuel used for business purposes, you can claim back the VAT for your journeys.
It’s also worth noting that you can claim VAT for all business-related expenses that come with running a fleet, including maintenance costs, repairs, or off-street parking. You can also claim for any accessories you’ve fitted for business use.
Fuel benefit charge
The fuel benefit charge is a type of tax which is applied to employees who receive fuel for their company vehicles or use fuel cards for personal purposes. The fuel benefit charge is a taxable benefit that the employee has received from their employer.
The calculation for this tax is based on the fuel benefit multiplier which is set by the government and represents the taxable value of the fuel provided for personal use and the employee's personal tax rate. The fuel benefit multiplier is typically lower for ultra-low emission vehicles to encourage the use of environmentally friendly vehicles.
The key factors which influence the fuel benefit charge are:
- Type of fuel - Alternative fuels may have different tax rates or multipliers assigned to them as an incentive for businesses to switch to lower-emission vehicles.
- CO2 emissions - Higher vehicle emissions are generally associated with higher tax rates or multipliers and so have a significant impact on the fuel benefit charge.
- Fuel efficiency - Vehicles that have better miles-per-gallon (MPG) ratings may be subject to lower charges as they require less fuel for the same distance travelled.
- Private use percentage - As the fuel benefit charge is typically applied to the estimated personal use portion of the fuel provided if the employee's private use is limited, the charge will be lower.
Optimising fuel efficiency
Businesses can save money by promoting fuel efficiency and encouraging their drivers to adopt the practice of hypermiling. This technique involves driving in the most fuel-efficient way possible by slowing down, anticipating events before they occur, limiting the use of brakes when it's safe to do so and getting fuel for the best price.
It's important to ensure that your drivers receive training so they learn how to drive more economically and understand the benefit of route optimisation to save money on fuel.
Drivers can also maximise their hypermiling techniques by ensuring that their vehicles are in top condition through regular maintenance and servicing. This can help to increase the fuel economy of your vehicle, giving you more miles for less fuel and saving your business money in the long run. In addition, having more fuel-efficient vehicles in your fleet will help your business to reduce its carbon emissions, therefore protecting the environment and improving the reputation of your brand.
Alternative fuels and electric vehicles
Alternative fuels are becoming an increasingly popular choice for businesses as they offer many financial and environmental benefits. One of the main advantages of alternative fuels and EVs is that they generally cost significantly less to refuel than their traditional ICE counterparts. This can lead to substantial savings in fuel expenses, especially if you operate a large fleet of vehicles.
There's also a range of Government grants available which help to make the adoption of EVs, in particular, more affordable for businesses and these types of vehicles are often taxed at a lower rate than petrol and diesel vehicles.
As vehicles that use alternative fuels often have fewer components, they have lower maintenance and operating costs. This helps to offset the initial investment costs and reduces downtime for maintenance and repairs. If your drivers regularly travel through large cities, such as London and Manchester, then you could benefit financially from using alternative fuels as you won't be subject to the fees and restrictions of the recently introduced clean air zones.
To help ease the transition to alternative fuels, we have introduced two EV charge cards.
Reporting and Compliance
Businesses that pay the fuel benefit charge must fill out regular reports to stay compliant with HMRC. Here are the key reporting obligations for businesses:
- P11D form: You must report the fuel benefit charge on your employee's P11D form and submit it to HMRC by July 6th of every year.
- Class 1A National Insurance Contributions (NICs): Businesses are required to pay Class 1A NICs on the fuel benefit charge which needs to be sent to HMRC by July 19th following the end of the tax year.
- Pay As You Earn (PAYE) Reporting: The fuel benefit charge must be included in the PAYE reporting system. This involves deducting the appropriate tax and National Insurance contributions from the employee's salary based on the fuel benefit charge and reporting those deductions to HMRC through the Real-Time Information (RTI) reporting process.
- Keeping records: It's important to ensure that you keep up-to-date records of fuel costs, mileage records and details of fuel provided for personal use as they may be required for potential audits by HMRC. These should be retained for at least six years.
All businesses must comply with these reporting requirements and always provide accurate and complete information to HMRC or you may face penalties or legal consequences. To make filing your taxes easier, you can consult with a tax professional who will help ensure your business stays compliant with the necessary reporting requirements and deadlines.
Future Trends and Considerations
The introduction of EV technology and other alternative fuels is likely to have a significant impact in the future. Currently, EV drivers do not have to pay for fuel duty but there's speculation that this may change following the 2030 ban on the sale of new petrol and diesel vehicles, to make up the tax revenue that will be lost if everyone switches to electric.
This is in line with the recent Government announcement that for the tax year of 2025 to 2026, the appropriate tax percentage for company cars which produce zero emissions will increase by 1% up to a maximum appropriate percentage of 20%.
Although the Government still wants to incentivise businesses to use EVs, this policy marks the start of the process to equalise rates for electric, petrol and diesel cars in the longer term. Businesses should therefore consider that they could save money on tax by choosing electric vehicles for their fleet now, but this may change in future years.
Fuel cards, your fleet, and salary sacrifice
A salary sacrifice is an arrangement between an employer and an employee to reduce said employee’s cash payment, typically so they can be paid in return with a non-cash benefit. This is something that must be mutually agreed upon and needs to be changed in the employee’s employment contract if it hasn’t been already.
Salary sacrifice can be a useful way for streamlining tax effectiveness for employers and employees. If you wanted to offer company cars to drivers in your fleet, then a salary sacrifice presents a viable finance option, as a portion of the employee’s wage will be used to pay for the vehicle. These payments are subtracted before tax and, although they will still accrue Benefit-In-Kind tax on their cars, the amount of BIK paid is typically less than NIC and income tax saved.
Salary sacrifice can be used to purchase more expensive vehicles at a discounted rate, something which can save you money in the long run when you factor in the fuel efficiencies of newer and therefore more costly vehicles. When combined with one of our fuel cards reducing the cost of fuel, and efficient vehicle models the cost saving can be considerable. With a more efficient vehicle, trips to the petrol station will be far fewer, but when a driver needs to fill up their fuel tank, our fuel cards can offer a cheaper visit with our fixed weekly price.
If done correctly, salary sacrifice can also be a smart way to fund your fleet as the salary of your workforce pays the lease hire, and both employer and employee come away with a noticeable tax benefit. However, it’s wise to plan for long-term contingencies, factoring in lengthy absences or unplanned leave.
How our fuel cards can help
Our fuel cards make tax tracking your business expenses an easy process. We provide single HMRC pre-approved invoices with clear information about all your payments, so you don’t have to worry about compiling and sorting through receipts. Having all your data in one place saves your finance team considerable time, effort, and any unnecessary headaches.
