Car fuel benefit - May 2008
From 6th April 2008, the multiplier for car fuel benefit increases from £14,400 to £16,900 (an increase of 17.36 per cent), providing a prompt for employers who presently provide fuel, along with company cars, to consider withdrawing the facility. It is very often not economic, in many cases drivers would find it cheaper to pay for all fuel than to pay the tax charge.
For the employer, withdrawing the provision of fuel would:
- Save the cost of fuel
- Save the Class 1A NIC of 12.8 per cent on the (private) fuel benefit charge
- Pay for business fuel on a mileage basis at HMRC rates. The VAT can still be reclaimed if the employee provides garage receipts (not necessarily with every expense claim, but enough to cover past business mileage)
Thus the employer effectively avoids the cost of paying for the employee's private fuel. And the employee:-
- Saves the income tax on the fuel benefit charge
- Pays for all fuel but receives non-taxable/non-NIC'able reimbursement for business miles
In many cases just looking at the employees finances and disregarding the employer makes the decision obvious. Where that is not so, the employer could possibly share their own savings by giving a small pay rise.
Each individual would need to be considered separately, as their total and mix of business/private miles could vary so much, as will the fuel efficiency and fuel type of various cars. The position of director shareholders should also be included when considering this.
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