Paying tax on fuel for business journeys

Tuesday October 2016

Question: I have recently started a new job and, for the first time in my career, I have been provided with a company car. I have to pay for fuel for private use but my employer says I can claim mileage for business journeys. Will I have to pay tax on fuel payments?

Answer: In addition to the company car benefit charge, employees have to pay tax on any fuel their employer provides that is used for private mileage. For 2016-17 you would calculate this amount by multiplying the car’s CO2 percentage by £22,200. So, if the percentage is 28, the tax charge for petrol is £6,216. For a basic rate taxpayer, the after-tax cash equivalent is £1,243 and for a higher rate taxpayer £2,486. The charge is the same regardless of whether you use 2 litres or 2,000 litres of fuel.

However, this tax charge can be avoided if you pay all the private fuel costs back to your employer. You need to keep accurate records (mileage logs and fuel receipts) to support such a claim to HMRC.

Your employer can give you a tax-free fuel allowance if you pay for fuel used for business travel in your company car. HMRC publish new advisory fuel rates four times a year. The most recent rates, apply from 1 September 2016.

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