What Are Car Benefits and Allowances?
Car benefits and allowances are payments or perks employers give employees who use a car for work or business travel. These can include:
Company Cars:
A company-provided car that an employee can use for business and private journeys. The value of this benefit is taxable and worked out using HMRC’s benefit-in-kind (BIK) rules, based on the car’s list price and CO₂ emissions.
Car Fuel Benefit:
If an employer pays for fuel for private use in a company car, this creates an extra taxable benefit which must also be reported and taxed through payroll or a P11D.
Mileage Allowances:
If an employee uses their own car for work, employers can pay tax-free mileage allowances up to HMRC’s approved rates. Anything paid above these rates is taxable.
Car benefits and allowances help employees cover travel costs, but it’s important for employers and employees to know how they’re taxed and reported.
Getting Started with Car Benefits and Allowances
Before offering or claiming car benefits and allowances, it’s important to understand how they’re taxed and what records you need to keep.
Company Cars:
If you provide a company car, you must calculate the benefit-in-kind (BIK) value based on the car’s list price, CO₂ emissions, and any contributions made by the employee. The taxable benefit is reported to HMRC, usually through payroll or a P11D form.
Car Fuel Benefit:
If you pay for or reimburse fuel for private journeys, this creates a separate taxable benefit. Many employers choose not to cover private fuel because the extra tax can outweigh the benefit.
Mileage Allowances:
If an employee uses their own car for work, employers can pay tax-free mileage allowances up to HMRC’s approved rates (45p per mile for the first 10,000 miles, then 25p). Payments above these rates are taxable and must be reported.
Understanding the basics helps employers provide the right support for travel costs while keeping tax bills accurate and avoiding penalties.
