Company car fuel benefit explained
Whether you drive a company car or are just considering one, understanding company car fuel benefits and their implications is crucial. This guide will explain how the fuel benefit charge is calculated, provide an example of costings, and answer some of the most commonly asked questions surrounding fuel benefits.
What is a company car fuel benefit?
Company car fuel benefit is a tax you’ll pay when your employer covers the cost of fuel for personal journeys. This is applied because the fuel provided for non-business travel, like commuting, is considered a benefit-in-kind (BIK).
The HMRC sets a figure called the ‘fuel benefit multiplier’ each year. This figure, combined with the car’s BIK rate, determines the taxable amount of fuel benefit.
How do you calculate car fuel benefit?
Calculating a car fuel benefit charge is straightforward. You’ll need to find your car’s BIK rate and multiply this by the current Fuel Benefit Multiplier; here’s the calculation:
BIK Rate × Fuel Benefit Multiplier = Fuel Benefit Charge
Step-by-step breakdown:
- BIK Rate: varies depending on your cars CO2 emissions, with electric and hybrid vehicles attracting more attractive rates.
- Fuel Benefit Multiplier: the UK government sets this figure annually. For the 2024/25 tax year, the multiplier is £27,800.
- Once you’ve multiplied these two figures, the final amount represents the value of fuel benefit you’ll need to pay depending on your income tax rate. For example, if you’re a 20% taxpayer, you must multiply this figure by 20%.
Example car fuel benefit
To help, let’s break down what a company car fuel benefit would look like for a VW Tiguan R Line eHybrid. This plug-in hybrid emits just 11g/km of CO2, giving it a BIK rate of 5% for the tax year.
Using the government-set fuel benefit multiplier of £27,800:
Fuel Benefit Charge = £27,800 × 5%
Fuel Benefit Charge = £1,390
If you’re a higher-rate taxpayer (40% tax band), the tax payable on the fuel benefit would be:
Tax payable = £1,390 × 40% = £556
This is the amount you would need to pay in tax to receive the fuel benefit in kind, making it an attractive option for company car drivers.
Does the fuel benefit differ for electric cars?
Yes, the fuel benefit charge for electric cars is different from that for petrol or diesel models. Electricity is not classified as a ‘fuel’ under current regulations, so electric car users have no equivalent fuel benefit charge. This makes electric car lease deals more tax-efficient.
Find out more about business car leasing with Synergy
At Synergy, we make business leasing simple and transparent. With a wide selection of vehicles and flexible leasing options tailored to your needs, Synergy is your trusted business leasing partner.
Our dedicated account managers can guide you through the process, ensuring you understand all aspects, including potential tax implications and fuel charges. With our award-winning customer service and expert support, you can lease with confidence.
Get in touch with us today to find out more.
