UK: Taxflash: Mileage Rates – April 2015

COMPANY CAR USERS – FURTHER CHANGES TO TAX FREE FUEL RATES FROM 1 MARCH 2015

HMRC regularly publish approved 'fuel only' rates which have, again, changed.

These rates apply if you are provided with a company car by your employer and you;

• claim a mileage allowance from your employer solely for the cost of fuel used on business journeys, or;

• repay your employer for fuel used on private travel – including that between your home and normal workplace.

If you use the approved rates, you have certainty that you are claiming no more than the true cost of fuel used on business journeys and so will not be taxed on a 'fuel benefit'.

The rates last changed on 1 December 2014 and have now been amended with effect from 1 March 2015. Overall, all rates have reduced reflecting the recent drop in fuel prices.

If you have been either claiming more for business mileage, or repaying less for private mileage, than the HMRC official rates, HMRC's view is that fuel for private travel is provided by the employer. The car driver is therefore taxed on the fuel benefit scale charge, unless the car user meets the cost of all fuel used privately. In the past when rates have changed, HMRC have said they would not pursue this line but no such reassurance has been given for some time. There is, therefore, a risk that company car drivers who might have paid a few pence less for their private travel than the official rate will be taxed on the full fuel scale benefit, which could add up to £2,500 to their annual tax bill. Employers would also be hit with extra Employer National Insurance on the fuel benefit.

The new rates effective from 1 March 2015 are as follows (previous rates, if different, shown in brackets);

If you pay your employer for petrol used on private travel, you should now reduce the amount you repay your employer. Equally, those claiming business mileage from their employers should immediately reduce the amount claimed.

Where employees are paid mileage allowances rather than being reimbursed the cost of their fuel, the business can either account for a scale charge or claim input VAT on fuel for the actual business mileage, depending on whether the mileage allowances covers all mileage or just business mileage. Note that the new scale charge regime is based on CO2 emissions.  Subject to a scale charge being accounted for where required, the business can reclaim input VAT out of the fuel element of the mileage allowance. The fuel rates are the same as in the table above and are treated as inclusive of VAT for reclaiming input VAT.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.