Company Car Tax Guide

Employers Reimbursing Employees For The Cost Of Fuel Used For Business Travel

If the rate paid per mile of business travel is no higher than the advisory rate for the particular engine size and fuel type of the car, we will accept that there is no taxable profit and no Class 1 NICs liability. This reflects the fact that they are intended to reflect actual average fuel costs.

We are not suggesting that employers should always use these rates for reimbursing employees for business travel in company cars. The advisory rates represent average fuel costs, and employers may wish to set rates which better reflect their particular circumstances. For example, where the cars in the fleet are fuel efficient, employers may prefer to reimburse at lower rates than those outlined here.

The advisory rates will not be binding where an employer can demonstrate that the cost of business travel in company cars in the fleet concerned is higher than the guideline mileage rates - perhaps where employees need to use particular types of car such as 4x4s to cover rough terrain.

If an employer pays mileage rates that are higher than the advisory rates but is unable to demonstrate that the fuel cost per mile is indeed higher, there is no fuel benefit charge if the mileage payments are made solely for miles of business travel. Instead, any excess will be treated as a taxable profit and as earnings for Class 1 NICs purposes. The employee can obtain relief for any actual expenses which have not been reimbursed.