The costs associated with ‘free fuel’

Historically, it was considered attractive for employees to receive ‘free fuel’. This is usually provided to the employee by way of a company fuel / charge card.


Use of company cards to pay for fuel


When the employer pays a company fuel / charge card invoice it is settling a ‘pecuniary liability’ of the employee which means that a Class 1 NIC charge is due via the payroll.


Where the company’s fuel policy states that:


“ the employee must make it clear to the petrol station attendant that the he / she is discharging the liability to pay for the fuel via a company fuel / charge card “


then no Class 1 NIC charge will arise (known as ‘the litany’).


This first arose in the ‘Overdrive case’ in 1991 however the Class 1 NIC point has rarely been challenged in practice by HMRC until very recently.


Employees using company cars


Where individuals are being provided with private fuel for their company cars then a benefit in kind will also be reported on their P11Ds. The current fuel benefit charge is £21,100 x CO2 % of the car (even if only 1p of private fuel is paid). The employee will suffer income tax on this, the company will be required to pay Class 1A NIC and the VAT fuel scale charge will be incurred.


In many situations it is cheaper for the employee to pay for their own fuel rather than pay the tax on the fuel benefit charge. If you add to this the NIC saving and fuel scale rate saving that the employer would make then the provision of ‘free fuel’ to employees is rarely cost effective.




We would strongly recommend that businesses providing ‘free fuel’ to employees perform a cost v benefit analysis of this arrangement.


Moore and Smalley can undertake a review of employment related policies and advise on efficiencies and risks for both the company and the individuals concerned based on the specifics relating to your business.