June 2023 advisory mileage rates - is fuel benefit financially worthwhile for your motor dealership?

HMRC have published the fuel only approved mileage rates that apply from the beginning of June.

The rates for petrol and electric have remained static, but we have seen movement on diesel and LPG. 

You can continue to use the old rates for a month, and hybrids should be treated as either petrol or diesel. 

Business journeys in employee owned cars

If you are a motor dealer who has staff who sometimes use their own car for business-related journeys, don’t forget that you can pay 45p per mile for the first 10,000 miles and 25p thereafter without creating a tax liability for you or the employee. 

Of course you could choose to pay less than the maximum, in which case your employees could claim tax relief on the difference.

Should you be providing fuel for private use to employees?

I have recently seen an increase in the number of motor retailers who are no longer providing fuel benefit to their employees on cost grounds.

This can be an awkward conversation to have with employees, but a successful outcome is more likely if it can be shown that whatever alternative is on offer, puts them in a better position.

One way to do this is to work out whether fuel benefit is in reality costing them more than if they covered their own fuel costs.

Is fuel benefit financially worthwhile?

A relatively simple three-stage calculation can be used to aid decision-making.

1. Calculate the real cost of the fuel benefit = BIK value x the employee’s marginal rate of tax
2. Work out the cost per mile of running the car they normally drive
3. Divide real cost of fuel benefit by running cost per mile to give break even point for private mileage

Many employees with low private mileage get a surprise when they see their own calculation, as they often assume receiving fuel benefit will be best for them. By removing this benefit, however, cost savings can often result for both dealer and employee.

If you do go down this route, care will be needed. Firstly, you must ensure that you have adequate records to show that fuel is no longer provided for private use. Secondly, if you give an alternative, for example, a fuel allowance, advice should be taken to ascertain the correct tax treatment.

All the new fuel rates can be found here.