Fuel cards and tax: everything you need to know

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Fuel cards and tax: everything you need to know

There are many benefits to using fuel cards but one of the most significant is the broader scope it affords fleet owners, and the insight it gives into how money is spent on fuel. It’s important to know both how your resources are distributed and how much tax is owed, as this is a critical element of running a fleet. Pay too much and you cut your margins short but pay too little and you risk finding yourself in hot water.

As an employer, ensuring the members of your team who use your fuel cards know what they can and cannot do with them will save you from additional work further down the line. The best way to avoid unplanned expenses is to understand how employee perks and benefits impact tax liabilities.

Fuel cards, tax implications & Benefit in Kind

A Benefit in Kind is a benefit given to an employee that isn’t included in their regular salary; this can be anything from cash bonuses and pension benefits, to relocation or childcare expenses. As an employer, you may need to report any expenses or benefits that your employees receive, as you may be required to pay tax on them.

Regardless of the perks or benefits, you offer your employees, using a fuel card for business purposes doesn’t fall under the category of a taxable benefit. However, if an employee uses one of your cards to pay for fuel they’ve used for personal travel, then you and the company would have to pay tax charges. If this were the case, the business would have to pay users National Insurance contributions based on the value of the fuel used for personal use.

While these complications can sound like a lot of extra work, they’re easily avoidable and, with proper planning, can be steered clear of. It’s essential that cardholders are aware of what is defined as personal travel and what constitutes travelling for work. Confusion may arise when including the commute to work, which unfortunately isn’t considered travel for business.

Should employees use fuel cards to pay for personal travel, it may be prudent to request they pay back any expenditure to the business.

VAT & Fuelcards

VAT can be reclaimed on fuel used for business journeys, however, if fuel is used for private mileage then VAT must be paid in full. In addition, those using a fuel card for personal use can face a fuel benefit charge that considers numerous factors, such as the type of fuel paid for and the carbon emissions of their vehicle. HMRC requires a clear record of business and private mileage for all fuel card users so they can guarantee you’re meeting your tax liabilities.

If you don’t pay a fixed rate under the Flat Rate Scheme then HMRC suggests that you handle your VAT in one of three ways:

  • Reclaim all the VAT on both business and personal trips, ensuring that you pay the correct fuel scale charge for your vehicles. This option is often best if you don’t have detailed mileage records as it saves you from making an error on your estimations.
  • If you don’t have detailed records, but your business mileage is so low that the fuel scale charge would be higher than the VAT you can claim, you may be better off choosing not to reclaim any VAT.
  • If you do have detailed mileage records of the fuel used for business purposes, you can claim back the VAT for your journeys.

It’s also worth noting that you can claim VAT for all business-related expenses that come with running a fleet, including maintenance costs, repairs, or off-street parking. You can also claim for any accessories you’ve fitted for business use.

Fuel cards, your fleet, and salary sacrifice

A salary sacrifice is an arrangement between an employer and an employee to reduce said employee’s cash payment, typically so they can be paid in return with a non-cash benefit. This is something that must be mutually agreed upon and needs to be changed in the employee’s employment contract if it hasn’t been already.

Salary sacrifice can be a useful way for streamlining tax effectiveness for employers and employees. If you wanted to offer company cars to drivers in your fleet, then a salary sacrifice presents a viable finance option, as a portion of the employee’s wage will be used to pay for the vehicle. These payments are subtracted before tax and, although they will still accrue Benefit-In-Kind tax on their cars, the amount of BIK paid is typically less than NIC and income tax saved.

Salary sacrifice can be used to purchase more expensive vehicles at a discounted rate, something which can save you money in the long run when you factor in the fuel efficiencies of newer and therefore more costly vehicles. When combined with one of our fuel cards reducing the cost of fuel, and efficient vehicle models the cost saving can be considerable. With a more efficient vehicle, trips to the petrol station will be far fewer, but when a driver needs to fill up their fuel tank, our fuel cards can offer a cheaper visit with our fixed weekly price.

If done correctly, salary sacrifice can also be a smart way to fund your fleet as the salary of your workforce pays the lease hire, and both employer and employee come away with a noticeable tax benefit. However, it’s wise to plan for long term contingencies, factoring in lengthy absences or unplanned leave.

How our fuel cards can help

Our fuel cards make tax tracking your business expenses an easy process. We provide single HMRC pre-approved invoices with clear information about all your payments, so you don’t have to worry about compiling and sorting through receipts. Having all your data in one place saves your finance team considerable time, effort, and any unnecessary headaches.

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