Company car fuel benefit charge - Making good the cost of the fuel

Where an employee is provided with a company car and has to pay tax on the benefit, a further taxable benefit arises if the employee is also provided with fuel for private use. This additional fuel benefit charge can only be avoided if, in the tax year in question,

1. the employee is required to make good the cost of the fuel provided for the employee's private use and actually does so, or
   
   
2. fuel is made available only for business travel.

In a decision given on 3 October 2006, the Special Commissioner, ruled that, in the case Impact Foiling Ltd & Ors v Revenue& Customs, there had been no requirement for the two employees to make good the cost of private travel and that a payment made in a later tax year could not remove the fuel benefit charge as the statute requires that it be made good "in the tax year in question". Accordingly, the employees concerned were liable for the tax charge and the employer was liable to pay Class 1A NICs on the cash equivalent.

One of the arguments presented on behalf of the employer and employees was that HMRC, in the Employment Income Manual at page EIM23782, made a concession that, if the cost of fuel for private use is not made good within the tax year in question as the result of an unintentional error, it will be accepted as being made good if it is paid to the employer within 30 days of discovery of the error.

The key condition for this concession is that the facts must clearly show that the employee would have been required to promptly make good the fuel for private use if the error had been discovered in the tax year in question. This condition is only satisfied if

• the employer has a clear policy that fuel is not to be provided for private use, and
  
  
• any fuel provided for private use other than the occasion on which the error occurred was identified and made good at the relevant time.

The concession, therefore, only applies in the second of the two situations in which the fuel benefit charge may be avoided, namely where fuel is made available only for business travel. If, despite such a policy, fuel is provided for private use unintentionally, the employee must make good the cost of the fuel in the tax year in question or, by concession, within 30 days of discovery of the error.

...UK Payroll News - Latest

Further information:
Impact Foiling Ltd & Ors v Revenue & Customs
HMRC Employment Income Manual

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