In addition to the benefit in kind charged on directors and employees who are provided with a car for private use, there is a further taxable benefit for any free fuel paid for private journeys.
The fuel scale charge, like the car benefit is based on the official CO2 emissions percentage for that vehicle, multiplied by a notional list price of £21,100 for 2013/14 and £21,700 for 2014/15.
What is best for you? A worked example on an average car
The P11d benefit for 2014/15 for a director driving a diesel car with emissions of 125g/km would be calculated as 21% of £21,700, giving a taxable benefit of £4,220.
This benefit in kind applies unless there is full reimbursement of private fuel, generally by the end of the tax year. HMRC suggest that their advisory fuel rates, now published every 3 months, should be used for this purpose.
A higher rate taxpayer would pay £1,688 income tax (at 40%) on this benefit of £4,220.
If we assume that the actual fuel costs are 14p based on HMRC’s published rates the director would need to drive more than 12,057 private miles a year to make it worthwhile for the director to be given free fuel.
In this example if he travelled only 8,000 private miles it would make sense to reimburse his employer £1,120 (8,000 miles at 14p) to save tax of £1,688 a net saving of £568.
If you do a high private mileage, and home to office travel counts as private mileage, then it is still worth keeping the free fuel benefit. For example if a director travelled 15,000 private miles the reimbursement becomes £1,960. This is £272 more than the tax bill so it is worth keeping the free fuel and paying the tax.
On a gas guzzler the mileage is even lower
If we look at cars with the highest CO2 percentage of 35% (this is for cars that produce CO2 emissions of over 210g/km the numbers become:
Tax bill on free fuel benefit 21,770 x 35% equals taxable benefit of £7,619
Tax due on benefit equals £7,619 x 40% = £3,047.60
Based on these numbers unless you travel in excess of 21,768 private miles a year it is worth reimbursing your employer for any private mileage.
The savings based on 8,000 private miles a year is £1,927.
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