How does your business reclaim fuel expenses? Many businesses use a fuel card. Other businesses ask employees to submit fuel expenses.
It’s a strangely complicated business, in fact, made more complex by the presence of fuel benefit tax.
Fuel benefit tax: that’s where you can be taxed for the benefit of receiving ‘free’ fuel.
‘Free’ fuel is when your company pays for all your company car fuel, including private mileage. For most people, free fuel is not actually that free: it’s useful, but often costs more in tax than the benefit of the fuel.
The Cost of Fuel Benefit Tax
If you want to have all your fuel paid for by your employer, then the taxable amount is based on a single figure for 2018/19: £23,400.
This figure is then multiplied by the same percentage as the company car benefit based on the CO2 emissions and its type of fuel. And then by your marginal rate of tax.
The amount of private mileage required to make this an actual benefit is surprisingly great – often over 20,000 personal miles a year.
Using the AFR Route to Avoid Fuel Tax
The best way to avoid paying fuel benefit tax is to use what HMRC calls AFRs. These are Advisory Fuel Rates (or AFR).
It’s an agreed amount that HMRC considers is equal to the benefit of free fuel for private mileage – so no tax is incurred by the employee; and no NIC liability by the employer.
You use AFRs in two circumstances: to repay all private mileage incurred when an employer pays for all fuel; or to recharge the employer for business mileage incurred when the employee has paid for all fuel.
It’s important to keep accurate records of private versus business mileage.
Advisory fuel rates change every quarter, depending on the price of fuel.
Claiming for Business Mileage in a Grey Fleet Car
‘Grey fleet’ is the term given to private cars used for business. This does not mean commuting; but mileage incurred in a personal car going to a visit a client, for example.
The rates used for grey fleet mileage are different to AFRs. They are higher because they reflect a degree of wear and tear, take into account the cost of business insurance, along with the cost of fuel used.
The rates are called AMAPs – or Authorised Mileage Allowance Payments. They are 45p for the first 10,000 miles; 25p per mile thereafter.
The allowance is ‘personal’ and not per car. So if you travel in car A for 10,000 miles in the first six months of the tax year then you swap to another personal car, it doesn’t mean you receive another 10,000 miles at 45p per mile.
Electric Cars and Business Mileage
To add one final layer of confusion to business mileage is the treatment of electric cars. There are no AFRs – currently – for electric cars (Battery Electric Vehicles – or BEVs) because HMRC does not consider electricity a fuel.
However, if you are a grey fleet user of a BEV, you can use the AMAPs to reclaim business mileage.
As we said at the beginning – it’s a complex business claiming business mileage!