Many employees see being allowed the use of their own company car as acknowledgement of their status in a company. While the employee will be taxed on the benefit (free fuel), the tax charge is usually not as high as having to finance the car out of their own savings or taking out a loan. However, should the employer also offer to pay for all fuel (usually via use of a company fuel card), including for personal use, the employee could face a sizeable tax (and NIC) charge. Many company car users are unaware that unless they fully reimburse their employer for private fuel use, they will be taxed on a fuel benefit (free fuel) – even if the private mileage is relatively low. Private fuel use includes commuting to and from work.

Working out the fuel benefit charge

Crucially, the charge is not based on how much fuel is used privately. Rather, it is based on the cost of an average company car (£28,200 for 2025/26) multiplied by the appropriate percentage based on the car’s CO2 emissions.

For 2025/26, the appropriate percentages range from 3% to 15% for cars with CO2 emissions of 1–50g/km to 37% for cars with emissions greater than 155g/km. Diesel cars are charged a 4% supplement on these percentages (although the appropriate percentage is ‘capped’ at 37%).

A table of the specific percentages can be found at: Company car benefit the appropriate percentage

As an example, the fuel benefit for a conventional petrol BMW 3 Series (e.g. 320i/320d), with CO2 emissionsof 155g/km (the most common brand of company car) will be:

Taxable benefit: £28,200 × 37% = £10,434

Therefore, the tax cost of free fuel on this car would be:

• for a basic rate taxpayer – £2,087;
• for a higher rate taxpayer – £4,174; and
• for an additional rate taxpayer – £4,695.

NIC at the taxpayer’s relevant rate will also be levied as the benefit is deemed to be salary, i.e. calculated at 8% for those employees earning over £12,570 a year plus an additional 2% for those taxpayers earning between £12,570 and £50,270

Is this ‘perk’ worth receiving?

Taking the above BMW car as an example, assuming petrol costs £1.37 per litre and the driver gets 10 miles per litre, a basic rate taxpayer would have to drive 15,234 private miles in the tax year to break even (assuming 240 days at work, this equals less than 65 miles a working day). This is the level at which the cost of fuel (15,234/10 x £1.37) is the same as the tax on the fuel benefit. The NIC charge should also be taken into account in this calculation.

Whether the provision of fuel is a ‘perk’ will depend on how much private mileage the employee undertakes in the tax year, the cost of fuel, the appropriate percentage for the car and the rate at which the employee pays tax. In many cases, unless the appropriate percentage is low and private mileage high, free fuel will not be much of a perk.

Using the above BMW car as an example:

• Less than 15,234 personal miles per year – the fuel benefit likely not worth it
• More than15,234 personal miles per year – fuel benefit might be worth it

Compare this figure with the cost of fuelling a car for the expected annual mileage. If the tax on the fuel benefit exceeds the cost of private fuel, a suggestion would be to ask whether the employer would make an additional salary contribution as compensation for opting out of the fuel scheme.

Note that employees using company vans and having significant private usage could be liable for the fuel benefit, but no calculation is required. The current charge is a flat rate of £769.

Practical point

For many employees, opting out of the fuel benefit and paying for private fuel personally – while reclaiming business mileage at approved rates – results in a lower overall cost.

Partner note:

Employment Income Manual at EIM25500 – The benefits code: car fuel benefit