Company Car Fuel Benefit – A Useful Perk or a Costly Trap?

Having your company pay for fuel might sound ideal. It saves hassle and feels convenient.

But when you look closely, the company car fuel benefit can be far less generous than it appears.

The real value depends on your fuel policy, the car’s CO₂ emissions, and how much private mileage you drive.

Let’s break down how the tax works, how to avoid overpaying, and what you can do to stay compliant.

What the Company Car Fuel Benefit Means

When your employer covers all the fuel costs for your company car, HMRC treats this as a taxable benefit. It’s called the car fuel benefit charge.

This charge reflects the value of the fuel used for personal journeys. The amount you’re taxed on depends on the vehicle’s CO₂ emissions.

HMRC applies a set percentage, based on emissions, to a fixed figure of £28,200 for 2025/26. This gives the taxable value of your benefit.

For a car emitting between 1 and 50g/km of CO₂, the taxable amount is around £846. Furthermore, for a high-emission car of 160g/km or more, it’s over £10,000.

A basic rate taxpayer could pay around £2,086.80 in extra tax.

For higher-rate and additional-rate taxpayers, the bill rises sharply — up to £4,695 a year.

The employer must also pay Class 1A National Insurance at 15% of the benefit value.

Hybrid petrol cars are treated as petrol cars for this calculation, even if the engine runs only to recharge the battery.

Why the Charge Is Hard to Avoid

At first glance, you might think avoiding the tax is easy — simply don’t use fuel for private trips.

However, the rules are strict.

If any private fuel is used and not fully repaid to the employer, the tax charge applies in full. Even small amounts of private use can trigger the full benefit charge.

Paying a fixed sum each month rarely works. If the payment doesn’t cover the complete cost of private fuel, the charge still applies.

Using HMRC’s Advisory Fuel Rates (AFR)

To make life easier, HMRC publishes Advisory Fuel Rates (AFR) every quarter. These help businesses and employees calculate fuel reimbursements correctly.

The AFR ensures that repayments reflect realistic pump prices and fuel consumption. Rates differ depending on engine size and fuel type.

When to Use AFR

AFR works best in two situations.

Firstly, when the company pays for all fuel, and the employee repays the private mileage.

Secondly, when the employee pays for fuel and the company reimburses the business mileage.

Why AFR Helps

As long as the amount reimbursed doesn’t exceed the AFR, no taxable benefit arises.

The employer also avoids Class 1A National Insurance on the fuel. The system is fair, easy to use, and avoids disputes with HMRC.

It also saves time since you don’t have to calculate the exact cost per mile for each car.

Keep Good Records

Good records are vital for proving compliance.

You need to record all business and private journeys and total mileage each period.

Keep copies of fuel receipts and note the AFR used for each claim.

Digital tools like Xero or simple mileage tracking apps make this much easier.

Accurate records protect you if HMRC reviews your fuel arrangements.

They also help you understand whether the company’s policy makes financial sense.

Check After the Tax Year Ends

It may not be clear until year-end whether it’s cheaper for the company to pay for fuel.

A sensible approach is to pay for all fuel during the year and then review.

If the numbers show it wasn’t cost-effective, the employee can repay the full private fuel cost.

Doing this removes the benefit charge completely.

Key Deadline

The repayment must be made by 6 July following the end of the tax year.

If not, HMRC will apply the full car fuel benefit charge, even for small amounts of private use.

Put It in Writing

A written agreement between employer and employee helps avoid confusion.

It should explain who pays for fuel, how private mileage is calculated, and how reimbursement is made.

Formal agreements carry weight if HMRC ever queries the arrangement.

They also help ensure both sides follow the same process consistently.

Is It Worth the Company Paying for Fuel?

The company car fuel benefit can look attractive at first.

But for low-mileage drivers, the tax often outweighs the value of the fuel.

Employees with high business mileage and low-emission cars may find it worthwhile.

Using AFR and proper records can make the system efficient and fair.

Each case is different, so running the numbers before deciding is key.

Plan It, Do It, & Profit!

The golden rule is simple — always plan before acting.

A few minutes of number checking can save hundreds in tax each year.

Need help reviewing your company car fuel benefit policy?

Want to make your setup more tax-efficient?

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