It’s not too late to reverse car fuel ‘benefits’

One of the consequences of the various lockdowns over the last 12 months and staff working from home is much less driving.  Of course, less driving uses less fuel so the already expensive and inefficient ‘benefit’ of fuel for private travel in a company car becomes even more so - but it is not too late to put things in reverse.

Some company car drivers evaluate the cost to them and their ‘breakeven’ point, so may have already chosen to voluntarily ‘opt out’. However, it is not too late to make changes to significantly reduce the company’s costs whilst simultaneously increasing employees’ net pay. The position can be backdated to 6 April 2020 and generate ongoing savings in future tax years too.

The opportunity has a low risk rating with HMRC and is easily communicated to staff, but does require action by 5 April 2021 to obtain the savings for the current 2020-21 tax year.

The table below shows indicative ‘break even’ levels of private miles, i.e. where the employee’s tax liability matches the cost of the fuel they use.  Anyone driving fewer private miles is worse off and, put simply, the company is paying for the fuel, VAT and National Insurance charges that it doesn’t need to.

Car BiK % Mpg
Emp'ee tax rate %
Breakeven miles
30 30 40 16,725  
25 40 40 18,550  
20 50 40 18,550  
15 50 40 13,925  

Savings in the region of £1,500 to £2,000 per car per year are not uncommon.

Key benefits

The list below summarises the key ongoing benefits to both the employer and employees:

  • recurring employer savings, which may be shared if desired;
  • reduced fleet costs through reduced (private) mileage and more efficient driving;
  • remove uncapped fuel costs; and
  • removes exposure to fuel price rises on private travel and increased NIC/VAT costs on future scale charge increases.

How can RSM help?

We help client employers with the following, working with in-house teams and business expense system/fuel card providers where necessary:

Financial modelling and calculations
Calculating any amount required to maintain a cost neutral position for the employee, together with the savings generated for the employer. This data on savings is also helpful support for any business case for making the change(s).

Design issues
Looking at the ways in which any change should be implemented. For example, what should happen where tax and NIC rates change, or if an employee’s role and travel changes?

Establishing any system changes that may be required to payroll, business expenses and mileage record capture.

Tax and NIC
Ensuring changes are tax and NIC compliant; the risks of the benefit in kind position still applying are avoided and all required record-keeping is robust yet administratively straightforward.

Implementation plan
Setting out the overall implementation costs, the anticipated timescale for implementation and the return on investment (again helpful for business case documents). 

Developing an employee communication strategy aligned to your preferred and available communication media.

HMRC approval
Requesting confirmation from HMRC that any changes remove the benefit in kind charges.

For further information, contact Mark Morton.