Fuel Card Benefit Tax: Calculation, Avoidance, and Payroll Impact

If your employer gives you a fuel card and you use any of that fuel for private driving, the fuel card benefit tax is calculated by multiplying a fixed figure of £29,200 for 2026–27 by your company car’s CO2 appropriate percentage, then applying your income tax rate to the result.¹ The charge is flat-rate and all-or-nothing: one tank of personal fuel triggers the same tax bill as a year of it, unless you fully reimburse your employer for every private mile.

When You Get Hit With the Charge

The charge applies whenever your employer pays for fuel in your company car and any of that fuel goes toward private driving. Under Section 149 of the Income Tax (Earnings and Pensions) Act 2003, “providing fuel” is read broadly. It covers fuel cards, non-cash vouchers, credit tokens, direct reimbursement, and any arrangement where the employer picks up the cost.²

Genuine business travel is fine. Client visits, trips to a branch office, any journey with a real business purpose sits outside the charge. The trap that catches most people: your daily commute between home and your normal workplace counts as private travel, not business travel. HMRC draws that line firmly.

There is no partial relief for light users. Fill up once for a weekend away and the taxable benefit is identical to using the card every day of the year. The only way to escape it is to repay the full cost of your private fuel.

How the Tax Is Calculated

The calculation ignores how much fuel you actually use. It combines two figures: a government-set multiplier and your car’s CO2 appropriate percentage.

For 2026–27, the multiplier is £29,200, set by statutory instrument SI 2025/1254.¹ The appropriate percentage depends on your car’s CO2 emissions in grams per kilometre. For 2026–27, percentages run from 4% for zero-emission vehicles up to 37% for cars emitting 160g/km or more.³ Your car’s CO2 figure is on its V5C registration certificate or the manufacturer’s spec sheet.

The formula:

Taxable benefit = £29,200 × appropriate CO2 percentage

Then you apply your income tax rate. The UK bands for 2026–27 are 20% on taxable income from £12,571 to £50,270, 40% from £50,271 to £125,140, and 45% above £125,140.⁴

Worked Example

Take a petrol company car emitting 97g/km of CO2. That falls in the 95–99g/km band, giving an appropriate percentage of 25%.³ The numbers work out like this:

Taxable benefit: £29,200 × 25% = £7,300
Tax at basic rate (20%): £1,460 per year
Tax at higher rate (40%): £2,920 per year

That £2,920 comes out of the higher-rate taxpayer’s pay whether they used £500 or £5,000 of personal fuel over the year. HMRC normally collects it by adjusting your tax code, so the deduction is spread across your monthly pay packets rather than landing as a lump sum.

Pure Electric Cars and Vans Work Differently

Fully electric company cars that cannot produce CO2 while driving are exempt from the fuel benefit charge. Section 149(4) of ITEPA 2003 excludes “any facility or means for supplying electrical energy” for cars that “cannot in any circumstances emit CO2 by being driven.”² Employer-funded charging cards and home-charging reimbursements produce no fuel benefit charge on a pure EV. The exemption does not extend to plug-in hybrids, which can emit CO2 and stay inside the standard rules based on their emissions and electric range.

Vans use a completely different calculation. Van fuel benefit is a flat annual charge of £798 for 2026–27, producing £159.60 in tax at basic rate or £319.20 at higher rate.⁵ The all-or-nothing rule still applies.

How to Avoid the Charge Entirely

You can eliminate the fuel benefit charge by repaying your employer for every penny of private fuel. HMRC calls this “making good.” It is strictly all-or-nothing. Reimburse 90% of private fuel costs and the full benefit charge still applies as though you repaid nothing.⁶

The deadline is 6 July following the end of the tax year. Fuel provided during 2026–27 (6 April 2026 to 5 April 2027) must be reimbursed by 6 July 2027.⁶ You can pay the employer directly, have it deducted from salary, or replace the fuel in kind.

Working Out What You Owe

To calculate the private mileage repayment, HMRC publishes Advisory Fuel Rates by engine size and fuel type, updated quarterly. From June 2026, petrol rates are 14p per mile for engines up to 1,400cc, 17p for 1,401cc to 2,000cc, and 26p for engines over 2,000cc.⁷ Diesel and LPG have their own scales. If your employer uses these rates and you reimburse the full amount for every private mile, no fuel benefit charge arises.

Mileage records make this work. Log every journey with the date, start and end points, purpose, and miles driven, and keep business and personal trips clearly separated. Those records are your defence if HMRC asks whether your reimbursement really covered all private fuel.

Part-Year Fuel and the Reinstatement Trap

If the fuel card is provided for only part of the tax year, the charge is reduced proportionally. Section 152 of ITEPA 2003 multiplies the full benefit by the fraction of the year the fuel was actually available for private use.⁸ Free fuel available for 200 out of 365 days produces a benefit of roughly 55% of the full amount.

Watch out for one trap. If your employer withdraws free fuel mid-year and then reinstates it later in the same tax year, the proportional reduction is lost completely. The full annual charge applies as if fuel had been available all year.⁶ To get any reduction, the withdrawal has to hold for the rest of the tax year.

How the Tax Reaches Your Pay

Employers report the fuel benefit to HMRC on Form P11D, using working sheet P11D WS2 to calculate the cash equivalent.⁹ HMRC then adjusts your tax code so the extra tax is collected across the year through PAYE.

Some employers register to payroll the fuel benefit instead. This adds the taxable value to your pay each period and deducts the tax in real time, so nothing appears on a P11D at year-end.¹⁰ Either way the tax you owe is the same; only the timing and paperwork change. If a fuel card starts or ends during the year, expect a tax code change to follow, and check your next payslip to confirm the adjustment matches the period you actually had the card.

1
HM Revenue & Customs. Employment Income Manual – Car Fuel Benefit: The Multiplier (Section 150(1) ITEPA 2003 Amount)
2
Legislation.gov.uk. Income Tax (Earnings and Pensions) Act 2003 – Section 149
3
GOV.UK. Work Out the Appropriate Percentage for Company Car Benefit
4
GOV.UK. Income Tax Rates and Personal Allowances
5
GOV.UK. Increase to Van Benefit Charge and Fuel Benefit Charges for Cars and Vans
6
GOV.UK. Taxable Fuel Provided for Company Cars and Vans (480: Chapter 13)
7
HM Revenue & Customs. Advisory Fuel Rates
8
Legislation.gov.uk. Income Tax (Earnings and Pensions) Act 2003 – Section 152, Car Fuel: Proportionate Reduction of Cash Equivalent
9
HM Revenue & Customs. PAYE: Car and Car Fuel Benefit (P11D WS2 and WS2b)
10
GOV.UK. Tax Employees’ Benefits and Expenses Through Your Payroll