Free fuel even less attractive, says Fleet Alliance
16 February 2010
The benefit of so-called ‘free fuel’ has become even less attractive following changes announced by the Chancellor at the Pre-Budget Statement in December to the extent that having private fuel paid for is no longer a benefit for most drivers.
At the time, Alistair Darling said the provision of free fuel to company car drivers was “a perverse environmental incentive” and to encourage fuel-efficient travel, the fuel benefit charge multiplier would rise from £16,900 to £18,000 from 6 April 2010, a 6.5% increase.
The increase also makes it more expensive for companies who pay National Insurance Contributions on the fuel benefit charge, as well as hitting those drivers who pay benefit in kind tax on the taxable benefit of receiving the fuel.
In effect, the increase means that company car drivers with a vehicle with a P11D value of £18,000 or less will actually pay more in tax on fuel than they will on their vehicle!
Additionally, the breakeven point at which ‘free’ fuel becomes viable increases by about 1,000 private miles a year to approximately 15,000 miles on an average upper medium car.
To calculate the tax, you need to know:
For 2009/10, the fuel benefit charge multiplier is £16,900 x 19% = £3,211, giving a tax liability of £642 for a 20% tax payer and £1,284 for a 40% tax payer.
The sum of £642 will pay for around 127 gallons of fuel for a 20% tax payer and around 254 gallons for a 40% tax payer, assuming a national average price of around £5.04 per gallon or 110.8p/litre.
The breakeven private mileage for the 20% tax payer is therefore over 6,500 private miles (127 gallons x 51.4mpg) and more than 13,000 private miles (254 gallons x 51.4mpg) for the 40% tax payer.
From this April, however, the fuel benefit multiplier will go up to £18,000 and the BIK scale charge for the Audi at 144g/km increases to 20%. This gives a tax liability of £720 for a 20% taxpayer and £1,440 for a 40% taxpayer.
The breakeven private mileage also increases – to more than 7,350 private miles for the 20% taxpayer and 14,700 private miles for the 40% taxpayer.
It is estimated that as many as 380,000 employees still pay tax on company-provided fuel for private use, according to HM Revenue and Customs.
“The increase in the fuel scale charge is a reminder to companies that they need to reassess paying for free fuel. In many cases, it is no longer of benefit,“ said Martin Brown, managing director of Fleet Alliance.
"For firms that still give drivers free fuel, and therefore both pay for the fuel and the employer's NIC on the benefit charge, this is a good reason to think about buying drivers out of this benefit," he said.
To find out more about the cost of providing ‘free’ fuel to employees, or for details of any other products or services, please contact Fleet Alliance on 0845 601 8407; email info@fleetalliance.co.uk; or visit the website www.fleetalliance.co.uk
16 February 2010
The benefit of so-called ‘free fuel’ has become even less attractive following changes announced by the Chancellor at the Pre-Budget Statement in December to the extent that having private fuel paid for is no longer a benefit for most drivers.
At the time, Alistair Darling said the provision of free fuel to company car drivers was “a perverse environmental incentive” and to encourage fuel-efficient travel, the fuel benefit charge multiplier would rise from £16,900 to £18,000 from 6 April 2010, a 6.5% increase.
The increase also makes it more expensive for companies who pay National Insurance Contributions on the fuel benefit charge, as well as hitting those drivers who pay benefit in kind tax on the taxable benefit of receiving the fuel.
In effect, the increase means that company car drivers with a vehicle with a P11D value of £18,000 or less will actually pay more in tax on fuel than they will on their vehicle!
Additionally, the breakeven point at which ‘free’ fuel becomes viable increases by about 1,000 private miles a year to approximately 15,000 miles on an average upper medium car.
To calculate the tax, you need to know:
- The car’s combined fuel consumption and BIK tax percentage
- The price of fuel used
- The driver’s marginal tax rate and Government set figure.
Audi A4 2.0 TDI SE, 144g/km, 51.4mpg |
2009/10 |
2010/11 |
Fuel benefit charge |
£16,900 |
£18,000 |
BIK scale charge |
19% |
20% |
BIK tax for 20% tax payer |
£642 |
£720 |
BIK tax for 40% taxpayer |
£1,284 |
£1,440 |
Private mileage breakeven 20% tax payer (miles) |
6,500 |
7,350 |
Private mileage breakeven 40% tax payer (miles) |
13,000 |
14,700 |
For 2009/10, the fuel benefit charge multiplier is £16,900 x 19% = £3,211, giving a tax liability of £642 for a 20% tax payer and £1,284 for a 40% tax payer.
The sum of £642 will pay for around 127 gallons of fuel for a 20% tax payer and around 254 gallons for a 40% tax payer, assuming a national average price of around £5.04 per gallon or 110.8p/litre.
The breakeven private mileage for the 20% tax payer is therefore over 6,500 private miles (127 gallons x 51.4mpg) and more than 13,000 private miles (254 gallons x 51.4mpg) for the 40% tax payer.
From this April, however, the fuel benefit multiplier will go up to £18,000 and the BIK scale charge for the Audi at 144g/km increases to 20%. This gives a tax liability of £720 for a 20% taxpayer and £1,440 for a 40% taxpayer.
The breakeven private mileage also increases – to more than 7,350 private miles for the 20% taxpayer and 14,700 private miles for the 40% taxpayer.
It is estimated that as many as 380,000 employees still pay tax on company-provided fuel for private use, according to HM Revenue and Customs.
“The increase in the fuel scale charge is a reminder to companies that they need to reassess paying for free fuel. In many cases, it is no longer of benefit,“ said Martin Brown, managing director of Fleet Alliance.
"For firms that still give drivers free fuel, and therefore both pay for the fuel and the employer's NIC on the benefit charge, this is a good reason to think about buying drivers out of this benefit," he said.
To find out more about the cost of providing ‘free’ fuel to employees, or for details of any other products or services, please contact Fleet Alliance on 0845 601 8407; email info@fleetalliance.co.uk; or visit the website www.fleetalliance.co.uk
Phone: 0845 601 8407 | Email: info@fleetalliance.co.uk | Legal information |
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