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Is free fuel a fillip or a fool’s faux pas?

Don’t be a free fuel fool
Free fuel with your job sounds like a great perk, but you need to do your sums to make sure you don’t lose out

Company car advice: Ralph Morton
AudiA4Avant
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15 July 2012

Here's Ralph's Audi A4 Avant. He's worked out, on his own, that he'd be a fool to take free fuel because it would cost him more in tax than the perk was worth!

If you’re an employer who gives free fuel, or an employee who gets free fuel, you need to read this.

Story: RALPH MORTON

IT can’t be bad can it? Free fuel I mean.

Given the cost of the stuff – 134p a litre for unleaded and 139p for diesel – the idea of someone else paying for your fill ups is quite attractive.

My last brim on my Audi A4 Avant cost me a few pennies short of £80. That’s a sizeable chunk. Thankfully it is capable of at least 44mpg average in real life short-run/long-run mix.

  • At 10,000 miles a year and at 44mpg, free fuel costs more in tax than it’s worth

Nevertheless, you don’t want to be doing that too often.

Anyway, free fuel.

In Budget 2012, the Chancellor increased the free fuel benefit – it’s sometimes referred to as a multiplier – to £20,200.

To check the tax payable on the free fuel benefit, take your car’s CO2 emissions – we’ll stick with the Audi A4 Avant TDIe 163PS SE for this, and it’s 120g/km. That puts the Audi A4 Avant in the 18% company car tax category.

You now multiply 18% by the free fuel benefit to arrive at the taxable benefit in kind: in this case £3,636

Think before you say yes to free fuel - it might cost you more than it's worth

So if you pay tax at 20% the cost of free fuel is £727; if you pay tax at 40% then the tax is £1454.

Now, my mileage is no more than 10,000 miles a year – of that 5000 is private. At 44mpg that’s 114 gallons of diesel (a gallon is approximately £6.31). At current prices that’s a cost of £719 for my business and private mileage.

But if I took free fuel, it would cost me extra whether I paid at 20% or 40%. Indeed, I would be free fuel fool if I paid 40% tax – because I’d be paying £735 for the privilege of free fuel! Once you take into account that fact that I would claim my business mileage as a legitimate business expense, the cost of my ‘free’ fuel would rise even higher.

How daft is that? There’s nothing ‘free’ about it: it would be costing me money!

So, before you accept the largesse of free fuel from your employer, work out the real cost to you.

And for small business owners and business car managers, check whether it’s worth supplying free fuel, not only because of the unnecessary extra benefit in kind tax your staffer will have to pay – but think also of the extra National Insurance at 13.8% you’ll be paying too!

With most business car mileage, it’s worth avoiding the ‘benefit’ of free fuel, unless your commute is so great that it pays to take it.

Best of all – work it out: and don’t end up a free fuel fool.

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Matt Morton

Matt Morton

Matt Morton is an automotive content writer for Business Car Manager

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