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Guide to reclaiming business mileage

  • Find out if you need to pay fuel benefit tax and what it will cost
  • Latest mileage rates, plus what to do if you drive your own car on business
  • Tips to get the most out of the 'free fuel' benefit included

When it comes to company cars, fuel can be a complicated business. Do you need to pay fuel tax? What rate should you use to claim back business miles? What about driving your own car for business?

Before you make the decision to opt for a company car or use your own car for business use, it’s important to know all the facts and what you’ll need to pay when it comes to reclaiming business miles.

In this article we’ve also included top tips to help you get the maximum benefit from each option.

1) Company pays for your fuel

If your employer pays for all your fuel, both for private and business, you'll be required to pay fuel benefit tax in addition to BIK tax for the car.

The amount you pay is based on £22,100 (for the 2015/16 tax year - will go up to £22,200 for the 2016/17 tax year) which is then multiplied by the car's BIK tax percentage and then your own salary tax band – the same way your company car tax is calculated.

So, if your company car emits 99g/km of CO2 it’ll sit in a 17 percent BIK tax band for the 2015/16 tax year and your fuel benefit will be £3,757 for the year. Divide that by which tax banding you slot into (20 percent or 40 percent) and you’ll have the annual sum you’re expected to pay.

In this instance a 20 percent tax payer will be forking out £751 a year or £63 a month.

Parkers top tip: Choosing a car with a low CO2 emissions is the name of the game here – the bands are going up each year and tax for both the company car and the fuel will continue to rise. If you’re not a high-mileage driver, it might be better to opt out of the fuel benefit altogether. Click here for more on company car tax and to see how the changes in 2016 may affect you.

2) You pay for your own fuel

If you pay for your own fuel and need to reclaim those miles travelled for business, Advisory Fuel Rates (AFRs) are set by HM Revenue and Customs (HMRC) and reviewed four times a year. There are separate rates for different engine sizes and fuel types, and they are likely to change if there are any big fluctuations to the price at the pumps.

AFRs are only recommended guidelines so its worth checking if your company use their own set of rates for reclaiming business miles.

To view the latest AFR rates, click here.

Parkers top tip: You can't change the AFR rates but driving as economically as possible ensures the money you claim back covers the cost of the fuel. With a bit of luck it may pay for some of your private mileage too.

3) You use a fuel card

Fuelcards are becoming more widely adopted. The main benefits for companies is that it enables more visibility around expenditure, so they can start paying for fuel at a pence-per-mile rate rather than having to reimburse drivers at AFR rates.

It can benefit you as a driver because you won’t have the financial burden of needing to find the initial funds, plus your company will be able to deduct the cost from your salary less the value of any fuel used for business journeys.

Parkers top tip: Most fleet managers prefer fuel cards as it cuts administration costs and it's easy to track. Your best bet is to choose a very economical car and drive carefully to minimise your private fuel bills.

4) You use a pool car

If you only use a company car intermittently for work-related miles (such as travelling between business sites or visiting clients) and you do not take ownership of the car - like using a pool car - then you do not need to worry about tax.

In the majority of cases, if companies do not fuel the car for you, you will be expected to refuel the car and then file the receipt and the company will reimburse you the full amount.  

Parkers top tip: if you only do the occasional business trip then a pool car is ideal as there isn't any company car tax or fuel tax deducted from your salary.

5) You use your own car for business

Commonly referred to as ‘grey fleet’, if you drive your own car for business you must ensure the following:

  • That your insurance includes ‘Business Use’
  • The car is up-to-date with its MOT and servicing
  • Ensure that the car meets any age restrictions or CO2 limits set by the company

Many companies try to discourage the use of your own vehicle, mainly from a duty-of-care perspective because they are difficult to monitor.

HMRC sets the Approved Mileage Allowance Payments (known as AMAPs) and most companies use these when asking employees to reclaim business miles.

The current statutory mileage AMAP rates are:

Up to 10,000 miles: 45p per mile
10,000 miles or more: 25p per mile

These are higher than the AFR rates because in addition to the fuel costs, depreciation, insurance costs and road tax are all taken into account.

The rate is the same for all cars, irrespective of engine size, and if you’re paid a lower mileage rate you can claim tax relief on the difference. For instance, if the company pays 40p per mile up to 10,000 miles you can claim back five pence per mile from the government.

Parkers top tip: Running a newish, small car maximises your fuel economy and keeps running costs low (eg: road tax, insurance, servicing, etc) so claiming back at the AMAP rates means you should not only cover your costs (including depreciation) but you could make a bit of cash too.

Need to calculate your company car tax?

The Parkers Company Car Tax Calculator helps you to work out how much tax you would have to pay for your new company car, broken down into annual and monthly costs for 20, 40 or 45 percent tax payers.

Click here to use the tool.

Considering taking the cash instead of the company car?

One big perk to choosing a company car is that you no longer have to worry about maintenance, servicing, or dealing with the stress of selling the car at the end of the lease, and you're not personally tied into a financial contract. But it’s not for everyone and many people look to take the cash instead, especially if they already own a car or have a small commute.

To read more on the pros and cons click here

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