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Is free fuel worth it?

So your employer offers to pay for all your fuel on your company car that includes private and business mileage. Should you take up the offer? This depends on the type of car you have and mileage you do.The exercise here is to determine what is the break-even mileage to establish whether it is better to incur a fuel benefit charge on a company car or whether it is better to pay for all your own fuel and re-charge the company for business mileage.

For example, suppose you are provided with a company car with details as follows: BMW 320 diesel BluePerformance reg < 6.4.2020. CO2 emissions = 109 g/km. P11D value £29,350. We will assume that the car will be available for a full tax year and you are a 20% or 40% taxpayer. The data required and calculation for 2023/24 tax year is as follows:

Data		20% taxpayer	40% taxpayer
A	Your car’s CO2 emission figure	109	109
B	Taxable percentage from table 2023/24	30%	30%
C	Fixed value of fuel benefit for 2023/24	£27,800	£27,800
D	Average miles per gallon for your car	68 mpg	68 mpg
E	Price of diesel per litre	£1.70	£1.70
F	Your top rate of tax	20%	40%

The calculation		20% taxpayer	40% taxpayer
G	Fuel price per gallon = £1.70 x 4.546	£7.73	£7.73
H	Fuel benefit = B x C [£27,800 x 30%]	£8,340	£8,340
I	Income tax on fuel benefit = H x F	£1,668	£3,336
J	Break-even mileage = (I / G) x D	14,673 miles	29,346 miles

Data		20% taxpayer	40% taxpayer
A	Your car’s CO2 emission figure	120	120
B	Taxable percentage from table 2022/23	33%	33%
C	Fixed value of fuel benefit for 2022/23	£25,300	£25,300
D	Average miles per gallon for your car	61.4 mpg	61.4 mpg
E	Price of diesel per litre	£1.70	£1.70
F	Your top rate of tax	20%	40%

The calculation		20% taxpayer	40% taxpayer
G	Fuel price per gallon = £1.70 x 4.546	£7.73	£7.73
H	Fuel benefit = B x C [£25,300 x 33%]	£8,349	£8,349
I	Income tax on fuel benefit = H x F	£1,670	£3,340
J	Break-even mileage = (I / G) x D	13,265 miles	26,530 miles

Here is an example for 2022/23 with a different car - A VW Passat 2.0 diesel estate regd < 6.4.2020, CO2 120g/km.

Fuel Benefit

Company cars - advisory fuel rates (AFRs) per mile from 1 Dec 2024
Engine size	Petrol	Diesel	LPG
Up to 1400 cc	12p	11p	11p
1401 cc - 1600 cc	14p	11p	13p
1601 cc - 2000 cc	14p	13p	13p
over 2000 cc	23p	17p	21p

The results in the table shows that if you do less than 14,673/29,346 private miles in a tax year, depending on your tax rate, then it is better to pay for your own fuel.

However, in the real world, you are unlikely to achieve the manufacturers’ average fuel consumption figures and the price of fuel will also fluctuate.

Therefore, to allow for these, we recommend you substitute real mpg in the calculations and different fuel prices before making a final decision. We have found for most clients it is almost always better to pay for your own private fuel. For real miles per gallon figures visit:

http://www.honestjohn.co.uk/realmpg/

The results in the table shows that if you do less than 13,2654/26,530 private miles in a tax year, depending on your tax rate, then it is better to pay for your own fuel.

However, in the real world, you are unlikely to achieve the manufacturers’ average fuel consumption figures and the price of fuel will also fluctuate.

http://www.honestjohn.co.uk/realmpg/

If you decide that free fuel is not worth it and you will pay for all fuel, then you use AFRs to claim reimbursement of fuel used for business mileage in your company car - see table on left. AFRs are based on the c.c. of the vehicle and are also used where an employee repays the cost of fuel used for private travel in a company car. If you use your own vehicle for business mileage you can claim 45p per mile for the first 10,000 miles and 25p per mile thereafter.

Hybrid cars are treated as either petrol or diesel for this purpose. Electric cars 7p/mile