We have for several years been reminding clients that “enjoying” free car fuel from their employer for their private mileage can often be a bad deal.
If, for example, you have a diesel car with CO2 emissions of 140 grams per kilometre, you pay 120 pence per litre for fuel, manage an average of 35 miles per gallon, and are a 40% taxpayer, you would need to drive more than 17,000 private miles during the current tax year before you were better off with the so-called benefit.
If, in the same situation, you are also the owner of the company, there would be the additional cost of Class 1A contributions on the benefit. After corporation tax relief this would cost the company an extra £758 so you would need to clock up private mileage of over 22,000 miles before you were ahead of the game.
Even with a petrol driven car with CO2 emissions of 105 g/km, you would still need to drive more than 11,500 private miles (or 14,500 private miles for the company owner) in order to really benefit from “free” fuel.
If you are currently receiving free fuel and, in the light of the above, decide to stop, you will only be charged the fuel benefit for part of the tax year, provided you don’t revert to free fuel before the end of the tax year.
WARNING
However, if you already have a company car but no free fuel, and you decide to start taking the free fuel “benefit” you should make sure you do so at or close to the start of the tax year. This is because you will be charged the benefit for the full tax year regardless of when you start to take the benefit.
As a worst-case scenario, if you stated to take private fuel with effect from 5 March, you would need to drive twelve times as many private miles as the numbers quoted above!
