COMPANY CARS - 30.06.2020

Private fuel - getting the details right

Case facts

In Contract Services (Millenium) Limited v HMRC , the company (C) provided some of its employees with cars. They could use the cars for private journeys as long as they repaid the company for any fuel they used for these private journeys.

Unexpected NI bill. HMRC undertook a PAYE/NI compliance check and said that the company should have included a car fuel benefit on its P11Ds . It slapped a charge of £5,525 on the company plus penalties of £829 for carelessly omitting the fuel benefits. C’s appeal to a tax tribunal was dismissed.

What was the problem?

Private fuel. Providing private fuel to an employee is classed as a taxable benefit and the company must pay 13.8% Class 1A on the value of the benefit. The value of the benefit is based on the CO₂ emissions percentage of the car multiplied by the car fuel multiplier (£24,500 for 2020/21). The problem is that the value of the benefit does not change whether you provide one private mile of fuel or 20,000.

Solution. As C thought it had done, you can tackle the problem by getting employees to reimburse the private element of any fuel they use. But a company will only escape the charge provided it complies with both of the following conditions:

1. Agreement. The company should have an agreement in place with the employees (preferably in writing) which requires employees to reimburse the entire cost of the private fuel.
2. Payment. Then the employees must pay your company for the cost of the private fuel.

While C had met the first condition, it was unable to provide HMRC with adequate records to show that employees did not use private fuel without reimbursing the cost.

Was it a careless omission? HMRC charged the penalty for a careless omission in this case because it had highlighted to C the need to keep better private mileage records in its 2011 compliance check.

Good record keeping

As the case demonstrates, it’s vital that you keep robust monthly records of employees’ private mileage and reimbursement.

Tip. Make it company policy that all employees must keep detailed mileage logs of any private journeys. There are several mileage tracking apps that could help employees record this (see The next step ).

Tip. Make sure employees have reimbursed any private fuel by 6 July following the end of the tax year.

Tip. Rather than employees keeping logs of private mileage, you can avoid the risk altogether by getting the employees to pay for all their company car fuel personally and then submit an expense claim for their business mileage. Again, a mileage tracking app could help with this.

Tip. Review the findings from any previous HMRC compliance check to ensure that you have addressed all the points raised.

For a list of mileage tracking apps, visit http://tipsandadvice-financialcontroller.co.uk/download (FC 12.10.04).