Company Car Fuel Benefit Charge 2025/26

It doesn’t matter how big your company is or how many employees you have, if you provide company-owned vehicles for personal use, you must stay informed about car fuel benefits.

We will give you everything you need to know from what the car fuel benefit is, to the 2025/26 rates and how to report car fuel benefit to HMRC .

Fasten your seatbelts and let’s get started.

First things first, what is a car fuel benefit?

To put is simply, the car fuel benefit is applicable to UK taxpayers who use their company car for personal use and don’t pay for the fuel themselves.

It’s also worth noting tha t n ormal commuting is classed as personal use for company car fuel benefit purposes.

What are the company cars and vans rates for 2025/26?

In the Autumn Statement 2024, the government announced an increase in the van benefit charge, as well as the car and van fuel benefit charges.

Here are the 2025/26 rates:

What are HMRC’s advisory fuel rates for company cars in 2025?

Here are the advisory fuel rates set by HMRC  for company cars, starting from 1 March 2025:

Diesel

Petrol

Electric

Hybrid

For advisory fuel rates, hybrid cars are considered either petrol or diesel vehicles.

Do HMRC regularly update their fuel rates?

HMRC updates the advisory fuel rates quarterly to account for fluctuations in fuel costs. These updates occur on the following dates:

• 1 March

• 1 June

• 1 September

• 1 December

How to report car fuel benefits to HMRC

Your reporting options

1. P11D Form:

Submit this form at the end of the tax year, along with other benefits.

2. Payroll:

Process the car fuel benefit through payroll, deducting tax in real time.

Important update

From 2026, payrolling benefits will become mandatory.

This means that if you are currently using P11D forms you should consider switching to payroll processing now to stay ahead of the change.

Tax and Class 1A National Insurance Contributions on car fuel benefits

Your people must pay tax on any car fuel benefit they receive. The taxable value is calculated using HMRC’s appropriate percentage, which considers the car’s CO2 emissions.

Cars with lower emissions are assigned a lower percentage, whereas those with higher emissions receive a higher percentage, varying from 3% to 37%.

Your company also has contributions to make.

You’ll need to pay Class 1A National Insurance Contributions on the value of the car fuel benefit provided to your people.

What method is used to calculate the fuel rates?

Here’s a brief explanation of how HMRC calculates their fuel rates:

1. Mean MPG calculation: HMRC starts by determining the mean miles per gallon (MPG) based on manufacturers’ data. This figure is adjusted to reflect the distribution of specific models sold to businesses.

2. Applied MPG adjustment: the mean MPG is then reduced by 15% to account for real-world driving conditions, recognising that actual fuel efficiency is often lower.

3. Fuel price data: HMRC sources the petrol prices from the Department for Business, Energy, and Industrial Strategy, while LPG prices are taken from the Automobile Association website.

4. Rate calculation: using the adjusted MPG and current fuel prices, HMRC calculates the advisory fuel rates.

By doing all this, HMRC ensures that the advisory fuel rates are accurate and reflective of real driving conditions and fuel costs. Here is the calculation breakdown:

Diesel

Petrol

LPG

FAQs

Is it worth taking a company car?

Whether an employee should use a company car hinges on how much they drive and spend on fuel. If they rack up a lot of miles and their fuel costs exceed the car’s fuel benefit, it’s a good deal. However, if their fuel expenses are low, they could actually end up paying more with the benefit.

Choose Capture Expense and manage your company cars and fuel with ease

Want to see first-hand how our platform streamlines calculations and reimbursements, all while ensuring compliance with HMRC’s advisory fuel rates.

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