How do fuel cards work for employees?

Whether you’re a small business or large international company, deciding to move to fuel cards for your employees may seem like a big step. But the truth is very few businesses look back after making this change because of the significant benefits enjoyed by companies and their employees. Something we explore in this article, which aims to answer common questions about how fuel cards work for employees and why a fuel card is so often the right choice for a business too.

 

Can I give a fuel card to any employee?
Absolutely. If an employee uses a company vehicle or their own private vehicle for business use, then you can give them a fuel card to use.

 

Are there any risks to giving an employee a fuel card?
The great thing about fuel cards is that they actually reduce a couple of important risks, rather than create additional worries

First, fuel fraud is harder to commit because your company is charged directly for the fuel bought on a card. Also, if your company decides to provide fuel cards to your employees, you’ll be able to track every transaction they make through an online management system. This makes checking for any unusual activity very straightforward.

Second, fuel cards have the added protection of either being chip and PIN, swipe and PIN or swipe and signature. This means if a card was stolen, it would extremely hard to use fraudulently.

 

Will an employee reduce their fuel costs?
If you decide to provide an employee with a fixed weekly price fuel card, every litre of fuel they buy on that card will be charged at a competitive fixed price throughout the week. That’s because the fixed price is closely linked to the wholesale fuel market, which means it often leads to a saving versus the pump price.

Alternatively, if you assign an employee a pump price fuel card, they’ll pay the price at the pump. This makes the buying of fuel transparent for your employees, because they’ll know exactly what they are paying every time they visit a service station.

Although this may sound like a fixed weekly price fuel card will always be the best option, there are a number of factors that should be considered before choosing a fuel card for an employee. This includes an employee’s fuel usage, their normal travel routes and the availability of fuel stations.

 

How else will fuel cards for my employees save my business money?
As well as potentially reducing your fuel costs, a fuel card involves no interest charges or non-usage fees. So if your employees are currently using company credit cards to pay for fuel and your business is incurring interest charges, imagine how much you could save per year.

On top of this, fuel cards are proven to reduce admin costs because invoices and VAT are much easier to manage. Saved money you can invest elsewhere.

 

Are there any minimum spends involved for an employee or my business?
Not at all. So as well as there being no joining or interest fees to pay, you also don’t have to spend a minimum amount each month.

 

How else will an employee benefit from using a fuel card?
A fuel card should offer an employee plenty of other benefits. The main ones being:
No costs upfront – a fuel card eliminates the need for employees to spend their own money on fuel expenses and then claim it back. Instead, your company is charged directly, which means they’re never out of pocket.

Hassle free payment – employees can say goodbye to carrying cash or looking after receipts if they use their own or a company credit card. With a fuel card, the price of their fuel will automatically be added to your company’s next invoice.

Far less paperwork – with a fuel card, employees no longer have to keep receipts from fuel stations so your company can claim VAT back. Instead, your company receives a single invoice that’s pre-approved by HMRC, making it super easy for you to claim the VAT you’re owed.

Rack up reward points – at participating stores, a driver will be able to claim rewards points when they purchase fuel and other items on a fuel card. This includes Nectar points at Sainsbury’s, Morrisons More points at Morrisons and Tesco Clubcard points at Tesco.

No awkward questions – very occasionally fuel fraud does occur. This can lead to time-consuming investigations and employees facing awkward questions. But with a fuel card there’s little room for anyone to abuse the expenses system, because all purchases are tracked and your company is charged direct.

 

Will an employee have access to every fuel station?
The fuel stations an employee can use their fuel card at really depends on the fuel card that’s assigned to them. Some cards provide access to just the stations of a single fuel supplier, such as Shell; although further third-party sites may be added.

Other cards provide access to a range of fuel stations across the UK. For example, the Keyfuels card provides access to all Morrisons sites, selected Shell, Esso, BP and Co-operative stations, as well as 20 Moto motorway sites.

And The Right Fuelcard Company also has a Supermarket fuel card, which provides access to over 1,300 Sainsbury’s, Tesco and Morrisons fuel sites.

As always, the best thing to do is get in touch with one of our expert advisers to discuss your employees’ needs, either by filling in our online form, emailing info@rightfuelcard.co.uk or calling 0113 202 5110.

 

If an employee uses their own car for work, will they have to pay tax on the fuel they use?
Okay, the answer to this is a little tricky and long. So we’d always advise that you or an employee speaks to a tax accountant about something like this. It’s also important to state that this information is correct at the time of publishing; the below calculations are for illustrative purposes only; and always visit gov.uk or speak to a tax accountant for the most up-to-date information.

Right, now that’s all out of the way, here’s the answer we’d give if an employee raised the above question:
If an employee uses their own car for business and uses a fuel card to pay for their fuel, they will have to pay tax on what they purchase for work and private use.

This amount is calculated by first multiplying £24,500 (the fuel charge multiplier for 2020/21) by a percentage that relates to the CO2 rating and fuel type of their car (something an accountant will be able to provide you with). The total produced is then multiplied by 20% if the employee is a basic rate taxpayer, or 40% if they’re a high rate taxpayer. The figure calculated is then the taxable amount an employee will have to pay.

For example, if ‘employee A’ has a petrol car which was registered before 6 April 2020 and has a CO2 rating of 98g/km, the applicable CO2 emissions percentage charge is 24%. This means their vehicle’s annual chargeable benefit would be £5,880 (£24,500 x 24%). That £5,880 is then multiplied by 40% because ‘employee A’ is a high rate taxpayer. This gives a total of £2,352, which is the taxable amount they’d have to pay.

However, if an employee does use their own vehicle or vehicles for work, they may be able to claim tax relief on the approved mileage rate (more info at www.gov.uk/tax-relief-for-employees/vehicles-you-use-for-work). This covers the cost of owning and running their vehicle/s.

To work out how much they can claim for each tax year, an employee will need to:
• keep records of the dates and mileage of their work journeys
• add up the mileage for each vehicle type they’ve used for work
• take away any amount an employer has paid towards their costs, (sometimes called a ‘mileage allowance’).

The approved mileage rates for different vehicle types are as follows:

Vehicle typeFirst 10,000 business miles in the tax yearEach business mile over 10,000 in the tax year
Cars and vans45p25p
Motorcycles24p24p
Bicycles20p20p

 

So, let’s go back to ‘employee A’. If they did 12,000 business miles during the year, they could claim back tax relief of 45p on the first 10,000 miles and 25p for the next 2,000 miles. This equals £5,000. Overall, this would mean they’d pay £2,352 in tax, but claim £5,000 back in tax relief.

In addition, it’s worth pointing out that employers must pay Class 1A National Insurance Contributions (NIC) at 13.8 % on the taxable benefit calculated for an employee’s vehicle. For ‘employee A’, this would mean an employer would have to pay £811.44 in NIC, because their vehicle’s annual chargeable benefit was £5,880 (0.138 x 5,880 = 811.44).