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

As an employer, you pay your employees a wage in reward for the work they carry out for you. However, a wage is not the only financial contribution you may make toward your employees. Sometimes you might pay specific expenses that your employees incur as part of their work. There are rules about when you may pay a specific expense and how you should pay it. Therefore, you must be aware of rules relating to paying your employees’ expenses. Importantly, this includes whether you legally need to pay for fuel for employees when they use a vehicle to carry out their work. 

This article will examine when you should pay expenses and, with regard to fuel, the requirements relating to fuel usage from an employee when they use a vehicle as part of carrying out their work. 

Paying Employee Expenses

If you are required to pay any expenses for your employees, these should be detailed within the employment contract. Expenses tend to be paid in the form of reimbursements to the employee. Therefore, an employee will initially make the payment for the good or service. You will then pay this back to the employee.

Types of expenses you might pay for an employee could include:

• staying in 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;
• petty 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 obtain receipts 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 have to take them through your disciplinary process, which may ultimately lead to a dismissal.

Paying Fuel for Employees Using Private Vehicles

If your employee is a taxpayer, 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 they can claim a deduction from their income. 

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

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

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

When your employee uses their own vehicle for work purposes, 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. 

For example, if your employee makes 15,000 miles worth of business journeys per year in their car, you would calculate: (10,000 x 45p) + (5,000 x 25p) to find their ‘approved amount’ for the year.

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

Advisory rates should be used by employers where their employees use a company vehicle. Advisory fuel rates are based on the engine size and the type of vehicle used.

An employer can either reimburse the employee for fuel used for business purposes or request your employee to 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, fuel benefit charge does not apply. In this instance, the excess is dealt with as taxable profit and as earning for the purposes of Class 1 National Insurance.

Be sure to keep up to date on detailed information on advisory fuel rates for both you and your employer.

Key Takeaways

There are occasions where you may be required to pay expenses for your employees related to the work they carry out. 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. 

If you need help understanding the rules on 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