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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 ED 4 door saloon. 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 2018/19 tax year is as follows:



Data  

20% taxpayer

40% taxpayer

1

Your car’s CO2 emission figure

109

109

2

Taxable percentage from table 2018/19

26%

26%

3

Fixed value of fuel benefit for 2018/19

£23,400

£23,400

4

Average miles per gallon for your car

68 mpg

68 mpg

5

Price of diesel per litre

£1.20

£1.20

6

Your top rate of tax

20%

40%

The calculation

20% taxpayer

40% taxpayer

A

Fuel price per gallon = £1.20 x 4.546

£5.46

£5.46

B

Fuel benefit = 2 x 3 [£23,400 x 26%]

£6,084

£6,084

C

Income tax on fuel benefit = B x 6

£1,217

£2,434

D

Break-even mileage = C / A x 4

15,157 miles

30,314 miles

Data

20% taxpayer

40% taxpayer

1

Your car’s CO2 emission figure

120

120

2

Taxable percentage from table 2018/19

29%

29%

3

Fixed value of fuel benefit for 2018/19

£23,400

£23,400

4

Average miles per gallon for your car

61.4 mpg

61.4 mpg

5

Price of diesel per litre

£1.20

£1.20

6

Your top rate of tax

20%

40%

The calculation

20% taxpayer

40% taxpayer

A

Fuel price per gallon = £1.20 x 4.546

£5.46

£5.46

B

Fuel benefit = 2 x 3 [£23,400 x 29%]

£6,786

£6,786

C

Income tax on fuel benefit = B x 6

£1,357

£2,714

D

Break-even mileage = C / A x 4

15,260 miles

30,520 miles

Here is an example for 2018/19 with a different car - A VW Passat 2.0 diesel estate with CO2 emissions 120g/km.

Fuel Benefit

Company cars - advisory fuel rates (AFRs) per mile from 1 Dec 2018

Engine size

Petrol

Diesel

LPG

Up to 1400 cc

12p

10p

08p

1401 cc - 1600 cc

15p

10p

10p

1601 cc - 2000 cc

15p

12p

10p

over 2000 cc

22p

14p

15p

The results in the table shows that if you do less than 15,157/30,314 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 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 15,260/30,520 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 better to pay for your own private fuel. For real miles per gallon figures visit:

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 4p/mile