Drivers Guide to fully expensed fuel

14 April 2016

What is fully-expensed fuel?

Fully-expensed fuel, or ‘free’ fuel, is when a company car driver does not make a contribution to their employer for fuel used on private journeys.

While on the surface ‘free’ fuel may appear to be a benefit, drivers taking advantage of this will have to pay tax to HM Revenue and Customs for the privilege.

How does it affect my financial situation?

For drivers, ‘free’ fuel results in both winners and losers.

Some drivers will be paying more in tax than the value of the fuel they use for their private mileage, so would be better off paying for their private mileage themselves.

For others, paying the cost of the private mileage would be greater than paying the tax, and the benefit would be worthwhile.

Am I better off without ‘free’ fuel?

Using official fuel economy test results, a 20% income taxpayer who drives a BMW 320d ED Plus has to travel 13,746 miles a year before they are better off through receiving fully-expensed fuel.

If the real-world economy figures – achieved by a Fleet News long-term test car – are used, this falls to 9,546.

The breakeven mileage will vary for different cars and depends on a vehicle’s CO2 emissions, economy and cost, as well the price of fuel. It also doubles for 40% taxpayers.

The thresholds in fuel benefit charge and BIK bands increase every year, so the break-even mileage figure gets continually higher.

Why does my company want to take away this benefit?

In addition to the cost of the fuel itself, there are several other taxes and charges that your employer will have to pay in order to provide you with the benefit.

Removing ‘free fuel’ saves them an estimated £800 per employee per year in fuel bills and taxes.

If your employer wants to remove your benefit, they should be able to provide you with a cost analysis explaining why you are better off without it.

If you are currently better off taking the benefit, your employer may wish to provide you alternative compensation to remove it.

Alternately, your employer may wait to review the benefit when your company car is about to be replaced to allow you to consider taking on a more fuel-efficient vehicle.