Statistics from HM Revenue and Customs reveal that in 2007-08 – the most recent year for which official figures are available – a total of 340,000 company car drivers continued to pay benefit-in-kind tax on fuel used privately and paid for by their employer.

 

The number of drivers continuing to receive the benefit has reduced in recent years – it was 490,000 employees in 2003-04 and the taxman estimates that the total will have dropped to 310,000 when it publishes data for 2008-09.

 

Over the last decade employees in receipt of company-funded fuel used privately have seen the tax burden rise. The fuel benefit charge multiplier in the current financial year is £18,800 and the tax bill has also risen as company car benefit-in-kind tax thresholds have tightened.

 

Jaama’s EDS module enables drivers to make company car mileage returns online. Based on the private mileage element of their returns and the price of fuel, the technology also enables drivers to calculate whether they would be financially better off opting out of the so-called ‘free’ fuel benefit.

 

Jaama managing director Jason Francis said: “Given the advice over many years from financial experts it remains a mystery why so many drivers continue to receive ‘free’ fuel. 

 

“Our EDS module enables drivers to calculate exactly how much tax they are paying and how much fuel they are using privately. The system then gives employees the option of opting out of the scheme and reimbursing their employer for fuel used privately.

 

“It is likely in most cases that drivers will be able to save cash and their employers will save money in relation to the cost of fuel, National Insurance paid on benefits-in-kind and the VAT scale charge if the benefit was withdrawn.”

 

Historically ‘free’ fuel was seen as a valuable benefit. But year-on-year tax increases over more than the last decade have been designed to end the perk.

 

Even with pump prices at, or close to, record levels the likelihood is that only a handful of drivers will benefit from continuing to receive ‘free’ fuel – typically drivers of very low emission cars and those who clock up extremely high private mileages. 

 

However, the latter poses the question as to whether employers that are focused on cost-cutting should continue to fund employees’ to travel a high number of miles in their own time?

 

David Rawlings, director of independent consultancy Business Car Finance Wessex and a former automotive tax expert at business advisers Deloitte, said: “In calculating the private fuel benefit, the trick is to balance the interests of the drivers and those of the business. 

 

“In a climate of increasing fuel prices drivers will always be inclined to retain the benefit as they would wish to hedge the future cost to themselves. But from the businesses’ perspective, as private fuel is heavily taxed this is not the optimum financial solution as its costs will increase by more than the amount by which the employees’ benefit.”