Do I Legally Need to Pay for Fuel for My Employees in the UK?

In Short

• Employers are not legally required to reimburse fuel expenses unless stated in the employment contract or policies.
• Employers can pay Mileage Allowance Payments (MAPs) for business travel. Rates vary by vehicle type (e.g., 45p per mile for cars up to 10,000 miles).
• Employers should follow advisory fuel rates for business travel, ensuring no taxable profit or unnecessary National Insurance implications.

Tips for Businesses

Ensure your expense policies are clear and compliant with HMRC guidelines. Regularly update rates for fuel reimbursement and mileage allowances to reflect current regulations. Keep accurate records of employee mileage and reimbursements to simplify reporting to HMRC and support tax relief claims. Legal advice can help you draft and refine these policies effectively.

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Table of Contents

• Paying Employee Expenses
• Rules Relating to Expenses
• Developing an Effective Fuel and Expenses Policy
• Fuel Reimbursement for Employee Private Vehicles
• Rates for Different Vehicles
• Fuel Reimbursement for Company Vehicles
• Key Takeaways
• Frequently Asked Questions

UK employers have financial duties to their workforce that extend beyond basic wages. Depending on the circumstances, you may need to cover costs that your employees pay out of pocket when performing their job duties. Understanding the principles of expense reimbursement is critical for staying compliant with the law and treating your staff fairly. Fuel cost reimbursement for work-related vehicle use is a particularly common area where employers seek clarity. 

This article will address the relevant legal provisions and recommended approaches for managing workplace expenses, addressing the key question of whether you are legally bound to reimburse employees when they use their personal vehicles for business purposes. We break down the requirements and offer guidance for establishing expense policies that are both fair and legally sound.

Paying Employee Expenses

Generally, employers are not legally required to reimburse employees for out-of-pocket expenses. If you are required to pay any costs for your employees, these should be detailed within their employment contracts. Expenses tend to be reimbursed to the employee. Therefore, an employee will initially pay for the good or service and follow your instructions or expense policy to have these costs reimbursed. 

Types of expenses you might reimburse could include:

• employee accommodation as part of a work-related trip;
• relocation expenses when you require your employees to move to a new place of work within your business;
• general expenses, which can include items your employee is required to purchase to carry out their role; and 
• fuel expenses for travelling in a vehicle when carrying out work.

Rules Relating to Expenses

Generally, you should implement specific procedures and rules if you reimburse expenses for your employees. These rules and procedures should be detailed in your expenses policy and could include: 

• requirements to provide receipts within a certain timeframe for the purchases that employees are seeking reimbursement for; and
• information on whether the expenses involved are taxable. Notably, taxable expenses over a specific amount need to be reported to HM Revenue and Customs (HMRC).

Your employees must follow your rules and procedures carefully. Where they do not, you may consider not reimbursing them for an expense or even have to take them through your disciplinary process, which may ultimately lead to disciplinary action, such as an employee receiving a warning or, in the most severe instances, being dismissed.

Developing an Effective Fuel and Expenses Policy

Creating a comprehensive expenses policy is crucial, particularly for managing fuel reimbursement fairly and consistently within your business. Your policy should clearly define what amounts to “business travel” as opposed to personal journeys or commuting, as this distinction is essential for tax purposes and setting clear expectations with your employees.

Your policy should detail specific approval processes, timeframes for submitting claims (typically 30 to 90 days), and what supporting documentation is required, such as:

• receipts;
• mileage logs; or
• journey details.

You should set clear reimbursement timeframes so your employees know when to expect payment and explain the consequences if policy requirements are not met. Make sure you:

• communicate the policy during onboarding;
• keep it easily accessible; and
• review it at least annually to reflect HMRC rate changes and your business’ evolving needs.

Fuel Reimbursement for Employee Private Vehicles

In most cases, employees are taxpayers. If so, they have the right to tax relief for journeys they carry out as part of their work. Your business can either reimburse the employee’s fuel expenses or allow them to claim a deduction from their income. 

Your employees must keep a detailed record of the journeys they incur as part of work, such as:

• dates of travel;
• destinations;
• miles travelled; 
• receipts; and
• records of payments they may have made.

When your employee uses their vehicle for work, you may pay for their fuel. This is known as Mileage Allowance Payments (MAPs). These payments only need to be reported to HMRC once they exceed an ‘approved amount’. This ‘approved amount’ relates to the total of all the MAPs you pay that employee, regardless of whether your employee uses multiple private vehicles to make their business journeys.

Rates for Different Vehicles

The rates per type of vehicle are detailed below and can be found on the gov.uk website. 

You must calculate and pay your employees’ MAPs correctly. Your employee can use any unused balance of the approved amount to gain a tax relief, called Mileage Allowance Relief (MAR).

As an employer, you must report to HMRC any MAPs paid over the approved amount to an employee by using a P11D form, and then the amount of the ‘approved amount’ must be added to your employee’s pay. This will then count when deducting their tax. There are also detailed rules regarding when an employer may need to make deductions and pay National Insurance concerning MAPs.  

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Fuel Reimbursement for Company Vehicles

Employers should use advisory rates when their employees use a company vehicle. Advisory fuel rates are based on the engine size and the type of vehicle used.

An employer can reimburse the employee for fuel used for business purposes or request that your employee repay fuel used for their private purposes. 

These are some rules relating to the reimbursement of advisory fuel rates. For example:

• there is no taxable profit or Class 1A National Insurance for the employer to pay where the mileage paid by you as an employer does not exceed the advisory fuel rates;
• where the business travel cost exceeds the advisory fuel rates, or the vehicle is more efficient than the advisory fuel rates, you can use your own rates to reflect the circumstances; and
• if an employer pays mileage only for business travel above the advisory rates but cannot show higher fuel costs per mile, the fuel benefit charge does not apply.

Key Takeaways

There are occasions when you may be required to pay expenses for your employees related to their work. For example, your business might pay for the fuel your employees use for work-related journeys. Employees may be entitled to claim tax relief on this, so it is crucial that, as an employer, you correctly reimburse expenses to allow them to benefit from this. The key is to ensure that you are up-to-date with the fuel rates in effect occasionally and that your policies are carefully drafted to reflect your internal processes and the law.

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Frequently Asked Questions