Introduction: Understanding Fuel Benefits
Fuel benefits can look attractive on the surface—free fuel for your company car sounds great, right? However, the hidden tax costs can outweigh the perks. In this episode of the I Hate Numbers podcast, we break down how company car fuel benefits work, why they can become expensive tax traps, and how to decide whether it’s really worth it.
Main Topics & Discussion
The Myth of “Free” Fuel
Many business owners assume that having their company cover private fuel costs is a tax-efficient perk. However, the reality is that HMRC applies a significant benefit-in-kind tax to fuel provided for personal use. This means both the company and the employee could face unexpected costs at the end of the year.
How HMRC Calculates the Tax
The tax on company car fuel is based on a set “fuel benefit charge.” This combines a fixed amount (currently £27,800 for the 2025/26 tax year) multiplied by the car’s CO₂ percentage band. For example, if your car’s rate is 25%, the taxable benefit is £6,950. This amount is added to your personal income for tax purposes—meaning you’ll pay tax as if you’d earned that money.
Why It’s Rarely Worth It
In most cases, the actual cost of fuel you receive is lower than the tax you’ll pay on it. Even though it seems like “free” fuel, you could easily lose hundreds or even thousands of pounds more in tax. The company also pays 15% Class 1A National Insurance on the taxable amount, adding to the total expense.
A Simple Test: Is It Worth Keeping the Fuel Perk?
Here’s an easy way to check. Calculate how much personal fuel your company covers annually and compare it to the fuel benefit tax charge. If the tax bill is higher, you’re better off reimbursing the company for personal mileage instead of accepting the “free” fuel benefit.
Alternative Approaches That Save Tax
There are smarter ways to handle fuel costs without falling into the tax trap. For example, you can:
- Pay for private mileage yourself and claim business mileage at HMRC’s approved rate (45p per mile for the first 10,000 miles).
- Opt for hybrid or fully electric vehicles with lower or zero benefit-in-kind rates.
- Use business fuel cards solely for business journeys, ensuring private fuel is excluded.
Record Keeping and Compliance
HMRC requires accurate mileage logs to prove business use. Digital mileage apps or GPS-enabled records make this simple and protect you during potential audits. Keeping proper logs ensures you only pay tax on what’s necessary—and stay compliant without the admin stress.
Key Takeaway
Fuel perks often turn into expensive tax traps. The “free” fuel you get might actually cost you more than paying for it personally. With careful planning and the right approach, you can avoid unnecessary tax and keep your finances in better shape.
Episode Timecodes
- [00:00:00] – Introduction: The reality of fuel perks
- [00:01:22] – Understanding how fuel benefit works
- [00:03:06] – How HMRC calculates the charge
- [00:05:15] – Why the fuel benefit rarely pays off
- [00:07:10] – Smarter tax-efficient alternatives
- [00:08:55] – Final thoughts and best practices
Host & Show Info
Host Name: Mahmood Reza
About the Host: We’re accountants, educators, and financial coaches on a mission to make business and tax easier to understand. For over 30 years, I Hate Numbers has helped businesses plan smarter, save tax, and achieve long-term success.
Podcast Website: https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/
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