If an employer pays for any private fuel for a company car, the employee is taxed on a fixed amount: £29,200 for 2026 to 2027 multiplied by the car’s benefit percentage. Because the charge has nothing to do with how much fuel is actually used, it often costs far more than the fuel itself. It falls to nil only if the employer provides fuel for business travel alone, or the employee repays the full cost of all private fuel by 6 July after the tax year.

How is the car fuel benefit charge calculated?

Section 150 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) sets the charge as a fixed sum multiplied by the appropriate percentage. The Van Benefit and Car and Van Fuel Benefit Order 2025 (SI 2025/1254) raised the fixed sum from £28,200 to £29,200 for 2026 to 2027 and later years.

The appropriate percentage is the same one used for the company car benefit, based on CO2 emissions and, for low emission hybrids, electric range. HMRC’s booklet 480 at paragraph 13.6 confirms there is never a separate percentage for fuel. Some 2026 to 2027 percentages from HMRC’s appendix 2 tables (petrol and hybrid cars):

CO2 emissions (g/km) Appropriate percentage Fuel benefit at £29,200
1 to 50, electric range 40 to 69 miles 10% £2,920
100 to 104 26% £7,592
120 to 124 30% £8,760
155 and above 37% £10,804

The employee pays income tax on that figure at their marginal rate, and the employer pays Class 1A National Insurance at 15% for 2026 to 2027.

When does the charge apply?

Under section 149 ITEPA, a fuel benefit charge arises where fuel is provided for a company car that is itself taxed as a benefit. HMRC’s guidance at 480 paragraph 13.3 treats fuel as provided where its cost is met directly or indirectly by someone other than the employee, or where the employee is reimbursed for fuel. That covers:

  • a company fuel card used for all mileage
  • the employer paying fuel receipts, including for home to work journeys
  • a mileage allowance that covers commuting or other private trips

Commuting is private travel for these purposes. A mileage allowance that does no more than meet the cost of business fuel does not trigger the charge, and paragraph 13.12 says only an excessive allowance for genuine business travel creates a separate taxable profit. Fuel for an employee’s own car, or a car the employee hires, is outside these rules and is taxed differently.

Electricity is not a fuel for car fuel benefit purposes, so charging a fully electric company car at the employer’s expense does not create a fuel benefit charge. Workplace charging is separately exempt under section 237A where the facilities are at or near the workplace and available to employees generally. Plug in hybrids are different: if the employer pays for petrol or diesel, the fuel benefit applies at the hybrid’s appropriate percentage.

Why can the charge cost more than the fuel?

The charge is a flat figure that ignores private mileage. An employee who drives 500 private miles a year is taxed on the same £8,760 as one who drives 15,000, if their cars have the same percentage. For most employees with modest private mileage, the tax and Class 1A on the fuel benefit exceed what the private fuel would have cost to buy.

Illustration only. A higher rate taxpayer has a petrol car with emissions of 122 g/km and an engine of 1,800cc. The appropriate percentage for 2026 to 2027 is 30%, so the fuel benefit is £29,200 × 30% = £8,760.

  • Employee’s tax at 40%: £3,504.
  • Employer’s Class 1A at 15%: £1,314.
  • Private mileage of 4,000 miles at HMRC’s advisory fuel rate of 17 pence a mile for a 1,401cc to 2,000cc petrol car (from 1 September 2026) would cost £680.

Repaying the £680 instead would remove the £8,760 charge entirely, saving the employee £3,504 of tax and the employer £1,314 of National Insurance. For an employee with very high private mileage the figures can tip the other way, so the comparison is worth doing case by case.

How can an employee make good to avoid the charge?

Section 151 ITEPA reduces the charge to nil if the employee is required to make good the whole cost of fuel for private use, including commuting, and actually does so. Paragraph 13.10 says this can be by paying the employer, directly or by deduction from net pay, by replacing the fuel at their own expense, or a mix of both. From 2017 to 2018 onwards, the payment must be made by 6 July following the tax year in which the fuel was provided.

Making good is all or nothing. Paragraph 13.11 says that if the employee repays only part of the private fuel, the full charge applies with no reduction for what was repaid. An employee who underestimates private mileage by a few hundred miles can lose the whole relief.

HMRC’s advisory fuel rates simplify this. GOV.UK says there is no fuel benefit charge if the employer correctly records all private mileage and requires repayment at the advisory rate or higher. A lower rate is acceptable only if the employer can show it covers the full cost. The rates are reviewed quarterly, on 1 March, 1 June, 1 September and 1 December, and they apply to company cars only, not vans.

What if free fuel stops part way through the year?

The charge is reduced proportionately for any period when the car itself is unavailable, using the same days as the car benefit. If the employer stops providing free private fuel during the year, the charge is also apportioned, counting the days after withdrawal as days without the benefit. Paragraph 13.9 warns that if free fuel is provided again later in the same tax year, no apportionment is allowed and the full year’s charge applies.

So switching from a fuel card to a make good arrangement works best from 6 April, and switching back mid year undoes the saving.

How does salary sacrifice affect fuel benefit?

Where fuel is provided through an optional remuneration arrangement, section 149A ITEPA taxes the greater of the normal fuel benefit, ignoring any amount made good, and the salary given up. See salary sacrifice schemes for how this interacts with cars.

How is it reported?

Fuel benefit goes on the P11D, with Class 1A on the P11D(b), by 6 July after the tax year, and Class 1A is paid by 22 July (19 July by cheque). Alternatively it can be payrolled. Records of private and business mileage support both a nil charge and any apportionment. See also benefits in kind and the P11D.

What are the common mistakes?

  • Repaying some private fuel and assuming the charge reduces in proportion. It does not.
  • Missing the 6 July deadline for making good.
  • Treating home to work fuel as business fuel.
  • Paying a mileage allowance on a company car that covers commuting.
  • Reporting fuel benefit on a fully electric car.
  • Withdrawing free fuel mid year, then reinstating it before 5 April.

Vans follow a separate, much cheaper fixed charge, explained in company van benefit and van fuel benefit.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.