Introduction: Understanding Fuel Benefits

Fuel benefits can look attractive on the surface—free fuel for your company car sounds great, right? However, the hidden tax costs can outweigh the perks. In this episode of the I Hate Numbers podcast, we break down how company car fuel benefits work, why they can become expensive tax traps, and how to decide whether it’s really worth it.

Main Topics & Discussion

The Myth of “Free” Fuel

Many business owners assume that having their company cover private fuel costs is a tax-efficient perk. However, the reality is that HMRC applies a significant benefit-in-kind tax to fuel provided for personal use. This means both the company and the employee could face unexpected costs at the end of the year.

How HMRC Calculates the Tax

The tax on company car fuel is based on a set “fuel benefit charge.” This combines a fixed amount (currently £27,800 for the 2025/26 tax year) multiplied by the car’s CO₂ percentage band. For example, if your car’s rate is 25%, the taxable benefit is £6,950. This amount is added to your personal income for tax purposes—meaning you’ll pay tax as if you’d earned that money.

Why It’s Rarely Worth It

In most cases, the actual cost of fuel you receive is lower than the tax you’ll pay on it. Even though it seems like “free” fuel, you could easily lose hundreds or even thousands of pounds more in tax. The company also pays 15% Class 1A National Insurance on the taxable amount, adding to the total expense.

A Simple Test: Is It Worth Keeping the Fuel Perk?

Here’s an easy way to check. Calculate how much personal fuel your company covers annually and compare it to the fuel benefit tax charge. If the tax bill is higher, you’re better off reimbursing the company for personal mileage instead of accepting the “free” fuel benefit.

Alternative Approaches That Save Tax

There are smarter ways to handle fuel costs without falling into the tax trap. For example, you can:

• Pay for private mileage yourself and claim business mileage at HMRC’s approved rate (45p per mile for the first 10,000 miles).
• Opt for hybrid or fully electric vehicles with lower or zero benefit-in-kind rates.
• Use business fuel cards solely for business journeys, ensuring private fuel is excluded.

Record Keeping and Compliance

HMRC requires accurate mileage logs to prove business use. Digital mileage apps or GPS-enabled records make this simple and protect you during potential audits. Keeping proper logs ensures you only pay tax on what’s necessary—and stay compliant without the admin stress.

Key Takeaway

Fuel perks often turn into expensive tax traps. The “free” fuel you get might actually cost you more than paying for it personally. With careful planning and the right approach, you can avoid unnecessary tax and keep your finances in better shape.

Episode Timecodes

• [00:00:00] – Introduction: The reality of fuel perks
• [00:01:22] – Understanding how fuel benefit works
• [00:03:06] – How HMRC calculates the charge
• [00:05:15] – Why the fuel benefit rarely pays off
• [00:07:10] – Smarter tax-efficient alternatives
• [00:08:55] – Final thoughts and best practices

Host & Show Info

Host Name: Mahmood Reza

About the Host: We’re accountants, educators, and financial coaches on a mission to make business and tax easier to understand. For over 30 years, I Hate Numbers has helped businesses plan smarter, save tax, and achieve long-term success.

Podcast Website:https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/🎧 Listen & Subscribe to I Hate Numbers

Want more tax-saving insights? Listen and subscribe on Apple Podcasts for weekly episodes that help you plan, do, and profit.

Additional Links

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If you are a company car driver, whether that car is electric, diesel, petrol, hybrid, and you have fuel provided by your company, whether you own that company or you work for a company, then this episode is for you.

Hi folks. Welcome to I Hate Numbers. This is the show that helps you get comfortable with your business numbers so you can make more money, manage that space between your ears and have the business you aspire to. Now in this week's episode, I'm going to be putting a magnifying glass on something that, on the surface sounds like a perk, but could cost you more than it's worth -

the company car fuel benefit. And for those people who might be driving electric cars, don't get too smug because the car fuel benefit also applies to electric vehicles. In this episode, I'm going to break down how the tax works, whether it's actually worth it for your business. Let's tackle the first arena, and that's the illusion of potentially free fuel.

Now, on the surface, having your company again, whether you own it or you work for somebody else, pay for all your fuel bills, feels absolutely wonderful. You're going to have to fill up and claim back. No more messing around with receipts. Just drive, put the fuel in the tank or the car on charge and get on with business.

Now, HMRC unfortunately likes to spoil of the party. It doesn't see this as a freebie. They see it potentially as a benefit in kind, and that means tax. When something is a benefit in kind, what that means is potentially that personal component becomes subject to tax and National Insurance for the employer.

That free fuel might be the most expensive petrol, diesel or electric that you'll ever purchase. So how does the tax actually work? Well, when the fuel cost for your vehicle is covered by your company for both business and personal use, then HMRC will see that as a taxable perk. It's called the car fuel benefit charge.

Now, just as a heads up, folks, even if the majority of your time, your vehicle is used for business purposes and you just drive it to the office and back, or you do a small commute at the weekend, it doesn't matter. That's classified as ordinary commuting and therefore, all of the fuel that's provided becomes subject to that benefit charge.

The approach to working out the car fuel benefit is a percentage based on the car's CO2 emissions. The figure is fixed to 28,200 for the year 25/26. Now for those of you, by the way, 25/26 is accountant shorthand for the period 6th of April, 2025 up to and including 5th of April, 2026. Thank you Rome and the Catholic Church for that odd date.

Now a low emission vehicle which emits under 50 grams per kilometer of CO2 gives a taxable value of around 846.A higher emission car, 160 grams per kilometer or more jumps above 10 grand. Now, if you are a basic rate tax payer, approximately with income below 50 odd thousand 52 070 if you want to be precise, that's an extra two grand extra in tax and a higher rate tax

Payer, that's nearly 4,700 pounds. And on top of that, the company will pay 15%. Yep, 15% what's called Class 1 NIC, on top of that. And hybrids, by the way, and electric cars do not escape that. Now, why is this so hard to avoid? You might be thinking the use of the fuel is quite minimal. The majority of your time when you're using that vehicle, you're using for work purposes.

But unfortunately the rules are as they are, they've not been changed for quite a long time and it's doubtful whether they will be in the future. Now the rules go as follows. If any private fuel that you consume is not repaid in its entirety, the entire benefit applies. That's unlike if you have a car provided to you by your company, and it could be your own company or one that you work for, if you any making any contributions towards the car,

actually reduces your benefit and kind on the car itself. Even a small trip down to the shops, to the cinema, whatever your trip of choice is, will trigger the entire charge. Paying a notional amount each month doesn't help. It's got to cover every drop of private fuel, every kilowatt hour of energy or the tax charge stays. Now step forward,

HMCs Advisory fuel rates. Here's where you have help at hand. Now, HMRC publishes what's called advisory fuel rates. I'm going to be using the initials AFR (sounds much more jazzy) every quarter, and they will help calculate reimbursements - reimbursements which are fair. There are two main uses for the AFR. One,

the company pays all the fuel and the employee repays the private mileage using those rates. Number two, the employee pays the fuel themselves and just charges the company for any business miles they cover. If you stick to the AFR rates, no taxable benefit can arise. Those are published HMRC rates, and that's perfectly legitimate.

There's no tax fuel, no Class 1 A NIC for the company. It's simple, it's straightforward, and as far as these things can be, it's HMRC friendly. Now, if you are asking me what are the rates, well, the rates will vary, and the rates go as low as eight pence per mile up to 22 p per mile. It depends on the engine size.

So for HMRC, size does matter. It depends on the fuel type: petrol diesel or hybrid. And electric vehicles do not escape, by the way. And the rates for electric vehicles vary between eight and 14 pence per mile. Now, are there any sort of good housekeeping tips, things that you must focus on? Absolutely. So firstly, you must make sure you maintain good records. Keep logs of your journeys, business and private.

A manual version could be literally making a diary note at the end of each week. If you know you've made some historic journeys, but you can't figure out the miles, AA Route Finder, Google Maps, other applications, are in place to do that. There are going to be apps on the marketplace to help you do that as well.

Record the date, the mileage, the purpose of that trip, keep your fuel receipts and note the AFR rate that you are using. Now, if for any reason HMRC do pick up on this and investigate it, if you've got good records, then that is going to count very much in your favour, and it's a wonderful defence. If you have no records and it's literally a finger in the air job, then you are on a bit of a sticky wicket.

At the year end, make sure you check everything. You can pay for all the fuel during the course of the year. Review it after year end and if it wasn't worth it, make sure you repay any private fuel component by the 6th of July following the end of the tax year. If you manage to do that, the benefit charge will disappear.

Put everything in writing. Keep things clear with a written agreement between your company and employee. Spell out who pays for fuel, how the private mileages worked out, and how repayment happens. Now, many clients that we help with this here don't actually realise that they, even if they own their own company, are the employees of that company.

And they may think it's just their personal fiefdom. But I would say imagine your company is a large company. Make sure that the company i.e. the entity issues any agreement for use of vehicles, policies, etc. It’s good housekeeping practice and it avoids disputes and shows our friends at HMRC that you are compliant.

Now, is it actually worth it? And that's a fair question. Is the company paying for the fuel worth it for you? Now for high mileage drivers, low emission vehicles, it's a good possibility. For most though, however, the tax concerned, that's personal tax and National Insurance, outweighs the benefit. The free tank of fuel (and remember that includes electric) could end up costing more than champagne, or in our modern times, Prosecco counts as well.

Now, before you say yes to having company paid fuel, run the numbers, understand the rules, make the decision that benefits you, and don't line the pockets of the tax man, or tax person I should say. Now as a point to note, folks, we're talking about company cars here, ones that you use for personal use. A pool car is not part of this conversation.

If you feel this episode was useful, I'd love it if you could subscribe, download, share it with friends. Hey, even share a review! I'm not going to be embarrassed. Buy my book, I Hate Numbers. You'll find it's going to be a good read. It's amusing and it shares great insights and lots of people have found it very valuable.

It's a great stocking filler if nothing else. Until next time, plan it, do it and profit.