UK firms could save between £240 million and £390m a year by strategically withdrawing the ‘free' fuel benefit says The Miles Consultancy (TMC).
The fuel and mileage solutions provider calculates that up to 90% of drivers in receipt of private fuel benefit-in-kind (BIK) should give up the highly-taxed perk or be bought out of it.
HMRC figures show that 220,000 UK employees – nearly one in four company car drivers – are hanging on to the fuel benefit.
“Providing BIK fuel is often the same as paying £2 or £3 a litre” says Paul Hollick, commercial director of TMC. “It rarely makes financial sense for the driver and almost never for the company.”
TMC points out that the problem with BIK fuel for the employer is that it pays for the fuel in the first place, then the driver pays high BIK tax on it and then the company pays 13.8% Class 1A NICs on the driver's tax.
One TMC client with 350 company cars is saving around £440,000 per year since it strategically withdrew the benefit from drivers via a TMC-managed programme. Now it only provides private fuel if the perk works for both sides.
Hollick said: “Almost 80% of their drivers have already gone down either the opt-out or buy-out route. More than half the remainder are likely to join them. The average fully-expensed fuel cost in 2014-15 was £2,700 per annum per driver. The cost to buy them out would be £750, giving a net average annual saving of £1,950 each.”
Assuming similar figures for all drivers currently receiving BIK fuel, withdrawal programmes could potentially save UK fleets up to £390 million a year. It normally takes around six months to implement a programme based on individual drivers’ business/private mileage splits and actual fuel spend, said Hollick.
“The mathematics of BIK fuel don't add up. Surely it's time to weed out the BIK fuel 'zombies'?” he added.
How BIK fuel doubles the cost of diesel
TMC gives as an example a 40% taxpayer who receives BIK fuel for a 140g/km diesel company car. The car’s consumption is 47.5mpg and fuel averages £1.10 per litre. She averages 60 private miles a day and therefore achieves break-even on her £2,298 fuel BIK bill.
The employer pays £2,298 for her private fuel. The company reclaims net VAT of £196 using the VAT scale charges.
Corporation tax relief recoups another £609 for the business but there is £793 to pay out in Class 1A NIC on the driver's fuel benefit. Netted out, the fuel costs the employer £2,291.
Between them, the employer and driver pay £4,589 for fuel that only costs half that much at the pump. BIK fuel effectively doubled the fuel price.
It would be far more cost effective for the employer to eliminate the additional tax and NIC burden by withdrawing BIK fuel and adjusting the employee's salary so she would be no worse off reimbursing her private fuel costs.
- To find out more on the 'free' fuel benefit read: Is your company paying the price by offering staff 'free' fuel?
Sage & Onion - 16/12/2015 13:32
What's the "buy-out" calculation for a 20% tax payer driving a car with co2 of 99g/km? These are the drivers who you will have more difficulty in persuading to give up their private fuel benefit when their BIK tax on the fuel is only £63 per month for unlimited private miles, especially those with particularly long commutes.