Fuel cards - What to be careful of when providing cards to company car users

06 September 2019

06 September 2019 by Nigel Morris Motor, VAT

Often employers provide employees with a company car and also provide a fuel card to help with cash flow and VAT reclaims etc.

It is not always the intention to provide private fuel and the provision of a fuel card does not itself mean that a private fuel benefit exists. However, it does mean that where the policy is not to provide private fuel, great care and detailed records will be required.

This is because a car fuel benefit is incurred whenever:

  • any fuel is provided, whether or not for private use,
  • for a car that attracts a car benefit charge.

Fuel is treated as provided if:

  • any liability in respect of the provision of fuel for the car is discharged, or
  • a non-cash voucher or a credit-token is used to obtain fuel for the car, or
  • a non-cash voucher or a credit-token is used to obtain money that is spent on fuel for the car, or
  • any sum is paid in respect of expenses incurred in providing fuel for the car.

So, the fuel benefit charge “applies” when any fuel is provided to the employee, even if it is only provided for business use

The car fuel benefit charge is not related to the actual cost of providing the fuel.  Instead it is based on an annual scale charge (£24,100 for 2019/20), which is then multiplied by the percentage related to the CO2 rating and fuel type of the associated company car.

For example, a Diesel car with a CO2 rating of 99 g/km will have an annual chargeable benefit of £6,507 (£24,100 x 27%).  This would mean that the tax paid by a basic rate taxpayer would be £1,301 or £2,603 for a 40% taxpayer, even if the actual cost of private fuel in the year is only £1,200!

In addition to the tax charge the employer pays Class 1A National Insurance Contributions (NIC) at 13.8% on the taxable benefit, which in the example above would be £898.

Also, the charge is not reduced at all unless the employee makes good the cost of all the fuel provided for private use. The benefit is not reduced pound for pound to the extent that the employee makes good part of the cost of the fuel provided.

The repayment of private mileage can be calculated on an apportionment basis and using the actual cost of fuel or based on the actual private mileage at the appropriate Advisory Fuel Rate (AFR) linked to the vehicle fuel type and engine size.

Care will also be required when recovering the cost of private mileage from the employees to ensure that if this is utilised via payroll, that it doesn’t impact National Minimum Wage (NMW) compliance.

Other times where the benefit may be reduced are:

  • if the car is unavailable for part of the year;
  • if free fuel is withdrawn in a tax year and not reinstated;
  •  if the car is shared

HMRC require very detailed records to show journeys undertaken and will want any record of business miles or private miles to show the following for each separate trip:

  • Date
  • Start post code
  • Finish post code
  • Where visited
  • Reason for visit
  • Actual mileage undertaken
  • Starting odometer reading
  • Closing odometer reading
  • Summary of total miles in the period
  • Split between business and private
  • Details of private miles and calculation of reimbursement

Employers have been known to:

  • reimburse employees for the cost of private fuel, and
  • subject the reimbursement to tax under PAYE,
  • then claim that the fuel benefit charge does not apply because the reimbursement was taxed.

This is not correct. The legislation specifically prevents any liability to tax (other than the fuel benefit charge) arising in respect of payments for private fuel.

That being the case, it cannot be correct to subject the reimbursements to PAYE, nor can doing so affect the correct tax treatment, which is that:

the fuel benefit charge is imposed, and

the reimbursements themselves are not subject to tax (except, of course, if they are greater than the cost the employee has incurred, in which case the excess is chargeable as cash earnings).

VAT

A business can reclaim VAT on the cost of fuel, but where fuel cards are used this necessarily involves funding both business and private motoring. Full VAT recovery is therefore subject to applying the appropriate VAT fuel scale charge or accounting for VAT on the value of supplies of fuel for private use.

The latter option requires you to keep the detailed mileage records described earlier in this article to enable you to calculate how much fuel is used for business and private motoring. This may be unduly onerous and some businesses will prefer the simplicity of VAT fuel scale charges which vary with the CO2 emissions of the car.

As with any VAT claim, this must be supported by proper VAT invoices, which should be easy to obtain when using fuel cards.

What do you need to do?

Review your policy and records you have to ensure that you can demonstrate that where the private fuel benefit is not intended to be provided that you can clearly show:

  • the requirement to make good the whole of the expense incurred in connection with the provision of fuel for the employee’s private motoring, and 
  • the employee does make good that expense in that tax year, or by 6th July following the end of the tax year, or
  • In the tax year in question the fuel is made available only for business travel.

You may need to update the policy or procedures to ensure that your arrangements are sufficiently robust to show that a private fuel benefit in kind does not exist.

It may be that improvements in record keeping are required and that new technology or mileage recording apps can be used to make this easier and provide the necessary accuracy for HMRC purposes.

Involving your professional or fleet advisor may be a good move to ensure that the latest thinking and detailed knowledge of what is required can be applied to compliment your review and any amendments that might be required.

Get advice from the experts

If you have any queries regarding the tax implications of fuel cards, contact:

Nigel Morris, Employment Tax Director, nigel.morris@mhllp.co.uk, Tel: 07718 340634

Glyn Edwards, VAT Director, glyn.edwards@mhllp.co.uk, Tel: 07889 537549