Business paying for fuel

[Jammez]

Hi Folks

I can’t seem to find an answer to the his online so thought the PH collective might help. My other half owns a retail business, she’s looking at alternative ways to reward her shop manager rather than just a pay rise. She has a decent length commute so her fuel use is pretty high. Can she give her a fuel card and pay her fuel (this wouldn’t be business miles it’s her commute and personal mileage and we’re talking about in her personal car).

What would the implications of this? Would it be as simple as the employee paying tax on the fuel as part of her overall pay and could my other half claim back the VAT on the fuel?

Any thoughts would be really appreciated

Cheers

James

[anonymous-user]

It would almost certainly not be a good idea for the employee. It'll invoke a large benefit in kind liability.

A relatively easily achievable performance bonus would be a better way of encouraging the right type of behaviours and making the employee feel good.

[bogie]

The employee will just pay tax on the cost of the fuel, as if it were her salary, so effectively her fuel will cost 25% or 40% of the cost, depending on her tax bracket. So there is a good benefit if shes spending £10k a year on fuel and its only costing her £2.5k. HMRC usually get this back via a lower tax code by taking into account these "benefits".

[anonymous-user]

Actually, thinking about it, if it's just the fuel in isolation (no co car provision), might it avoid the set BIK fuel provision?

In any case, it's not necessarily the best way to reward an employee. If you feel the need to withdraw it later it will damage the relationship.

The principle should be reward tied to performance.

[Elysium]

If the employee does any business mileage they can be paid up to 40p per mile tax free (up to 10,000 miles then reducing to 25p per mile)

You can give them a fuel card to cover personal and private mileage. Then at the end of each tax year, you work out the total fuel value, less the maximum they could have been reimbursed for business mileage, to give you a benefit value, which is then taxed.

Even discounting the business mileage element, this is still good for the employee as they only pay a percentage of the private fuel cost at whatever tax band applies.

[Jockman]

I'd still do the pension route. Call me old-fashioned.

[Jammez]

Thanks for the replies folks, any thoughts on whether the VAT would be recoverable on the fuel?

The reason we're looking at the fuel rather than just a pay increase or bonus is that the individual has mentioned that the fuel costs are starting to be an issue. If we can cover those, and she only pays her 20% tax + we can claim the VAT back it seems a more cost effective way for us all to do it.

[Equus]

A company I used to work for gave us a fuel card.

We had the choice of simply paying the BIK on it, or logging our personal mileage and having the HMRC rated cost of that deducted from our salary.

We were ABSOLUTELY NOT advised by the company accountant to log the minimum believable personal mileage each month.

As I recall, it worked well if you lived 2 miles from the office, 'cos you could log a minimal amount of mileage but go on European tours every weekend at the company's expense, but not if you lived a long way away... if you did the sums, there was a threshold where it made more sense to just pay the BIK, and as I lived a long way away, I just did that.

[Eric Mc]

Jammez said:

Thanks for the replies folks, any thoughts on whether the VAT would be recoverable on the fuel?

The reason we're looking at the fuel rather than just a pay increase or bonus is that the individual has mentioned that the fuel costs are starting to be an issue. If we can cover those, and she only pays her 20% tax + we can claim the VAT back it seems a more cost effective way for us all to do it.

VAT on fuel costs which were incurred for the purpose of the business are fully recoverable. To achieve this, the business must only pay business related fuel costs or, if all fuel costs are paid by the business, accurate mileage figures maintained so the total fuel costs paid by the business can be apportioned accurately between business and non-business. VAT can only be reclaimed on the business portion.

An alternative route to reclaiming VAT on fuel is for the business to reclaim 100% of the Input VAT on ALL fuel costs but that the VAT Fuel Scale Charge is applied when completing the VAT return.

Alternat

[maffski]

You could give them a company van to commute in. If it's used just at work and to commute then there is no BIK at all as unlike a company car the commute is classed as work.

If it was used for personal use the BIK costs on both the vehicle and company provided fuel are much lower.

This includes small vehicles like the Fiesta van, it's also the reason for every double cab pick up you've ever seen.

[Jammez]

Thanks guys, that helps.

Looks like there's not really much advantage to going down this route - thanks for the other suggestions. We had thought about going down the small van route for her so that might be an option. Something like a Fiesta Van type thing might be an option.

Other types of reward, such as increased pension, bonus or simple pay rise would be obvious routes but I think her mindset around the cost of her commute would be difficult to get past.