Employer-provided petrol and diesel for private use may appear a flaw-free benefit to drivers, but it can be costly to both parties, finds John Charles
Almost a quarter of company car drivers continue to use fuel paid for by their company in private use. But it is certain that virtually all would save money by giving up the ‘perk’.
For most employees, so-called ‘free’ fuel will be the most expensive fuel they ever buy. In many cases, they would save cash if they paid for diesel or petrol used privately at the pumps or reimbursed by their employers at forecourt prices.
What’s more, the provision of fuel for private use is likely to be a significant cost to employers as well as encouraging staff to drive more miles, driving up the employer’s carbon footprint in an era of an ever-increasing focus on corporate social responsibility.
Tax experts agree that there will be very few circumstances where both the employee and employer will be financially better off by retaining ‘free’ fuel.
“I find it bizarre that employees are continuing to be in receipt of ‘free’ fuel,” says Alastair Kendrick, tax director at chartered accountants MacIntyre Hudson. “But all attempts at advice are ignored. Employees view it as convenient. Those still in receipt of the benefit seem oblivious to the reality of the tax position relative to the number of private miles they drive.
“I have done calculations for individual employees and proved to them they would be better off paying for fuel out of their own pocket, but they do nothing about it.”
Meanwhile, from the corporate perspective, Kendrick highlights the fact that businesses continuing to offer the ‘benefit’ are “inciting their employees to drive more miles”, thus maintaining an approach that is counterproductive to their environmental agenda.
What’s more, with pump price volatility, the higher the price of fuel, the more advantageous the tax position of drivers, but the higher the cost for employers.
David Rawlings, director of BCF Wessex Consultants and a former automotive tax expert at Deloitte, adds: “I cannot understand why employees and employers cannot get their heads around this issue – that in most cases it is costing both a lot of money.”
However, he adds: “There will always be a position where an employee’s cost of fuel is more than their tax bill so they will be better off retaining the benefit. But, their employer will be worse off.
“There are very few circumstances where both the employee and employer will be financially better off by retaining the benefit.”
John Pryor, chairman of fleet operators’ association ACFO, says: “For the vast majority of employees – perhaps 90% or more – the tax paid outweighs the value of the benefit.
“For a few employees who have very high private mileage it may work out as a cost-effective perk. The issue then is: should their employer be paying?”
Pryor also points out that there could be a ‘creeping’ move by drivers of ultra-low emission vehicles, such as plug-in vehicles, to look to benefit from the ‘perk’ – the only likely winners – in addition to those employees clocking up high private mileage.
The lower benefit-in-kind (BIK) tax rate paid by such drivers – 5% on cars with CO2 emissions of 50g/km or less in 2015/16 and 9% on cars with CO2 emissions of 51-75 g/km – could make it tax efficient for drivers to opt for the ‘benefit’ if it remains available from their employer.
Pryor adds: “It is an unintended consequence of the tax regime that employees may calculate that they are better off with company paid-for private fuel, as they will have to travel significantly less mileage to break even.”
HM Revenue and Customs’ (HMRC) provisional data for 2012/13, the most recent available, highlights that of 940,000 BIK tax paying company car drivers, 220,000 (or 23%) were in receipt of ‘free’ fuel.
That compares with, for example, 2004/05 when there were 1.2 million company car drivers of which 410,000 (or 34%) paid tax on ‘free’ fuel.
Since the late 1990s, the Government has increased the company car fuel benefit charge multiplier annually, and in 2015/16 it is £22,100.