Car Fuel Reimbursement Rates

The HMRC provides annually updated suggested fuel reimbursement rates for cars known as AMAP (Approved Mileage Allowance Payment) and AFR (Advisory Fuel Rate) rates.

The suggested reimbursement rates differ depending on whether the employee is using a company car or car allowance (in which case the AFR rate should be used), a car allowance or their own personal car (where the AMAP rate should be used).

Whilst most employers pay the HMRC approved rates, they are not legally compelled to do so. If as an employer you choose to pay less than the approved rate, your employee can claim tax relief on difference in their annual tax return. If, however, you choose to pay a higher rate, your employee will need to pay PAYE on the additional amount given to them.

Car Fuel Benefit-In-Kind Tax (BIK) 

When offering to pay for fuel, employers can offer to pay either for only business fuel/mileage or for all fuel/mileage (i.e. both business and private fuel).

Combined Private and Business Use Fuel

If you offer to pay (to any degree) for your employee’s private fuel, and this is not paid back to you by the employee, a benefit in kind (BIK) tax known as Car Fuel Benefit Tax is payable by the employee (in the form of Class 1A National Insurance contributions) on the private-use element.

Similarly, if you provide an employee with a company fuel card and they do not repay the private use element, they will need to pay Fuel Benefit Tax on the private-use amount.

Also important to note, is that if you provide an employee with a fuel allowance that covers private as well as business fuel for only part of the year, then they will still have to pay Fuel Benefit Tax for the entire year.

Interestingly, offering to pay for all of an employee’s private and business fuel may not always be in their best interests. We recommend you calculate whether the benefit of having you pay their private-use fuel is worth the employee having to pay the extra in tax every month, as sometimes, the extra tax payable can be higher than if they’d paid for the private-use fuel themselves.

The HMRC issues a ‘Company Fuel Benefit Charge Multiplier’ figure to help employers and employees calculate the amount of Fuel Tax Benefit employees would need to pay in this situation. This multiplier figure invariably changes each year, but for the year 2021/2022 this figure is at £24,500.

To calculate an employee’s Company Fuel Tax Benefit Charge payable for the year, take this figure (£24,500) and multiply it by the banding for the vehicle’s CO2 emissions (including any diesel penalty or supplement). Then multiply this figure by the employee’s usual rate of tax (20% or 40%).

For example:

£24,500 (the Company Fuel Benefit Charge Multiplier) x 30% (our hypothetical vehicle’s emissions banding) = £7350 x 40% (the employee’s tax rate) = £xx £2940 payable by the employee in Company Fuel Tax Benefit per annum or £245 per month in tax

Once your employee knows the amount of tax they’d have to pay on any privately used fuel allowance, they can then compare this figure against their average private-use fuel bill to see whether the allowance would save them any money.

Business-Only Fuel

If you pay only for your employee’s business fuel (not for their private use fuel), neither you, nor they, will have to pay any Fuel Benefit Tax (i.e. benefit in kind or BIK) on it.

Employers can reclaim VAT on reimbursements made to employees, but only for business mileage (not for private mileage). To be able to do this, you will need to retain the employee mileage record (and fuel invoices if using a fuel card).