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

As an employer in the UK, your financial obligations to your staff extend beyond basic wages. In some cases, you may need to reimburse employees for expenses incurred during their work. Understanding expense reimbursement rules is crucial for maintaining compliance and fairness in your organisation. One common area of inquiry is the reimbursement of fuel costs for employees who use vehicles for work-related purposes. This article explores the legal framework and best practices for managing employee expenses, focusing on the often-asked question: Are employers legally required to pay for fuel when employees use their vehicles for work? We’ll clarify this issue and offer guidance on developing fair and compliant expense policies.

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 must implement specific procedures and rules if you pay 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.

Paying Fuel for Employees Using 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. 

You should note that tax relief for work-related journeys generally does not apply to ordinary commuting from the employees’ home to their ordinary place of work. It is the employee’s responsibility to claim tax relief.

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.

To calculate the ‘approved amount’ for your employee, you must calculate the employee’s miles travelled per year for business and multiply that by the rate per mile of the vehicle.

Rates for Different Vehicles

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

Cars and vans

45p for the first 10,000 miles and then 25p for any mileage above 10,000 miles.

Motorcycles

24p regardless of the number of miles travelled.

Bikes

20p regardless of the number of miles travelled.

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.  

Paying Fuel for Employees Using 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 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 Insurances 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 has paid mileage payments solely for business travel and the rates they have paid exceed the advisory rates, yet they are unable to demonstrate that the fuel cost per mile is higher, the fuel benefit charge does not apply. In this instance, the excess is treated as taxable profit and as earnings for the purposes of Class 1 National Insurance.

2024 Key UK Employment Law Changes

As an employer, it is crucial to stay compliant with ever-evolving employment law. This factsheet outlines key changes in 2024 that will affect how you manage your workforce.

Download Now

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 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 pay 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.

If you need help understanding the rules for paying your employee’s fuel expenses, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions