Fleet News

Drivers set to cash in with fuel rate windfall

A NEW system of fuel-only mileage rates for company cars could allow companies to effectively pay staff a tax and national insurance windfall worth hundreds of pounds.

The new Inland Revenue system, which takes immediate effect and can be backdated to the start of the 2001/2002 tax year, sets out guideline repayment rates for employers to reimburse company car drivers who have paid for their own business fuel.

The average figures used in the repayment scheme are up to three pence per mile higher than the actual fuel costs of many company vehicles.

The rates suggest repaying drivers in petrol cars of 1.4 litres or less 10p per mile, those in 1,401cc–2,000cc cars 12ppm and those in cars of more than 2.0-litres 14ppm. Diesel drivers can receive 9ppm in sub-2.0-litre cars and 12ppm in plus 2.0-litre cars.

This could benefit employees, as in a sub-2.0-litre petrol car, achieving 35mpg, the driver would be paying for fuel at 9ppm, but being reimbursed at 12ppm.

Over 40,000 business miles, paid for by an employee but reimbursed by the company, a driver could end up in 'profit' by £1,200, paid tax and NIC free. In a sub-2.0-litre diesel car achieving 40mpg, the cost of fuel would be 8.5ppm, compared with repayment at 9ppm.

Employers are free to choose not to pay these rates, for example if fuel costs are higher than those suggested, such as for 4x4s covering rough terrain, or if vehicles are more fuel efficient and they only want to repay the exact cost of fuel.

But at the full rates, the scheme benefits drivers because of a large fall in the price of fuel since the rates were decided. They are benchmarked at 77p a litre for unleaded and 78p a litre for diesel.

Current prices are 70.2ppl and 74.8ppl respectively, according to AllStar figures.

The Inland Revenue says that to avoid constantly changing the rates, it has aimed for a benchmark figure that will only change if the price of fuel alters by 10%, although until April 5, 2003, fuel prices would have to fall 15% before it reduced the rates.

The new rates can also be used when staff are paying for private fuel provided by the company, to avoid becoming liable for the fuel scale charge.

In this case, the advisory rates are not binding and the Inland Revenue will accept staff paying the cost of fuel back at less than the guideline figures if they can show it covered the full cost of the petrol or diesel provided. However, the statement also says that only in exceptional cases will it consider arguing employers should impose a higher repayment rate for staff using private fuel, particularly for sub-3.0-litre engines.

The Inland Revenue said: 'The aim is to save time for both employers and the Revenue, by setting out some figures that can be used in the majority of cases.'

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