Private fuel allowances: a perk with little to recommend it

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By Catherine Chetwynd

HMRC statistics indicate that out of 945,000 company cars, some 200,000 are still driven by people who are paid private fuel allowances. Yet there is little to recommend this policy, from either the employee’s or the employer’s perspective.

Drivers perceive private fuel allowance as a perk, when in fact it is probably costing them money. The problem for employers is that this misconception can make it difficult to remove the facility. One alternative is to discontinue the allowance from a certain date, so new employees do not receive it. With existing employees who do gain, that employee can be bought out by calculating the difference between the taxable charge and the actual cost of the fuel and then grossing up that difference for tax and national insurance charges.

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