The taxable cost of receiving free fuel is rising.
From the 2008/09 tax year the set figure used to calculate the taxable benefit rises from £14,400 to £16,900 – representing an increase of 17%.
The set figure is used to calculate the free fuel benefit according to the car’s company car tax band. For a petrol car with CO2 emissions of 165g/km (21% tax band), the calculation is £16,900 x 21% = £3549. The final amount depends on your nominal rate of tax (20% or 40%).
What does this mean in real terms? Take the example of an £18,000 car with emissions of 180g/km and a driver at the 40% tax rate.
In 2007/08 the benefit payable by a 40% tax payer would have been £1325 (£14,400 x 23% = taxable benefit of £3312).
In 2008/09 the benefit payable by a 40% tax payer rises to £1622 because of the new rate and because the vehicle has moved up a tax band (£16,900 x 24% = taxable benefit of £4056).
In other words, the 40% taxpayer in our example would have to use £135 of private mileage fuel each month to make free fuel worthwhile.
In addition, the business has to pay 12.8% Class 1A National Insurance contributions on the benefit provided, making it an expensive perk and of questionable value.
Further information
- Go to our Law & Tax section for the free fuel tax tables
Private fuel benefit increases by 17%
