Consulting » Fuel – Free fuel priced out of existence.

Fuel - Free fuel priced out of existence.

The tax on perk petrol is rising fast, and some drivers could already be paying out more in tax than they receive free at the pumps.

As if the changes in benefit-in-kind tax were not enough, the government is also levying ever increasing taxes on the fuel given by companies to drivers for personal use. As a result, it is becoming more cost-efficient for drivers to pay for their own petrol than to accept it free.

Persuading employees that it is to their advantage to give up perk fuel requires a high-level communication campaign that presents the figures clearly and simply (for full details see table, below). Employers should be part of this. Andrew Cope, managing director of Zenith Vehicle Contracts, says: “Drivers have to understand where break-even point is for private miles usage, so that if they are worse off, they can pressure their companies to opt out of fuel.”

Looking from the company point of view, Gerard Gorner, tax manager of Lex Vehicle Leasing, sees sense in waiting. “We are advising employers to hang fire, given that the intention is to continue to put up tax. In two years’ time break-even point will be so high that as many as 50% of drivers will be handing back their fuel cards of their own accord. If it costs a company #2,500pa per driver to provide fuel for an employee who drives 10,000 private miles, and the company buys out of fuel now, it could set them back #500 a head, saving #2,000,” he says. “If they wait, it could cost them nothing. But it is important to look at the profile of employees.”

The government threatened to penalise drivers for use of free private fuel after the Kyoto Summit in 1998. “The idea was to make the benefit less attractive, so that people would think twice about leaping into their car,” says Julie Stribling, head of sales for ARVAL PHH. “For a car with a 1.4-litre engine, tax has risen from #800 to #1,900 between tax years 1997-98 and 2001-02.”

The rising tax on free fuel doesn’t only hit drivers. Heavy VAT and Class 1A NIC charges hit companies, too. “We are recommending that corporations remove the benefit and give additional salary to compensate employees for taking away what is perceived as a benefit,” she says.

“Unfortunately, many companies have drawn a link between fuel cards and high taxes and see the problem as the fuel card, and not the fuel,” Stribling adds. “But it is easy to make the transition from a fully funded card to asking employees to reimburse the company for their private mileage via a business mileage log.”

ARVAL PHH runs a logging system that can be implemented by phone. Drivers ring the ARVAL centre, and key in their business miles and fuel card number.

Fuel spend is reported back automatically. It is then simple to marry up pence per mile driven and percentage of business miles to calculate the figure the driver owes the company. This can be deducted from the payroll.

Again, in addition to separating private and business mileage, companies can also direct drivers towards more environmentally friendly fuels, including low sulphur petrol, bio-diesel and road fuel gas. As prices go down, and duty is frozen (road fuel gas until 2004), refuelling infrastructure improves.

Velo advises: “The 2p per litre reduction on normal unleaded petrol is only in place until June 14. By this time, the Chancellor expects ultra-low sulphur petrol to be widely available. But lower running costs will only be maintained if drivers are educated in the correct choice between the two types of fuel.”

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