Free Fuel Company Car Tax UK: Is the Benefit Worth It in 2025?

For many employees, having a company car feels like a clear sign of seniority and recognition. Although the car itself is taxed as a benefit, the tax cost is often far lower than buying a vehicle personally or taking out a loan.

However, things can become far less attractive when the employer also covers all fuel costs, including fuel used for personal journeys, typically through a company fuel card. What many employees don’t realise is that this “free fuel” can trigger a significant tax and National Insurance (NIC) charge, even if private mileage is minimal.

Crucially, unless the employee fully reimburses the employer for private fuel use, HMRC treats this as a taxable fuel benefit. This includes fuel used for commuting to and from work, which counts as private travel.

How the Fuel Benefit Charge Is Calculated

One of the biggest surprises for employees is how the fuel benefit is worked out. The charge is not based on how much fuel you actually use privately.

Instead, it is calculated using:

• A fixed fuel benefit multiplier (£28,200 for the 2025/26 tax year), and

• The appropriate percentage linked to the car’s CO₂ emissions.

CO₂ Emissions and Applicable Percentages (2025/26)

• Cars emitting 1–50g/km: percentages range from 3% to 15%

• Cars emitting over 155g/km: 37%

• Diesel cars attract a 4% supplement, capped at 37%

The official percentage table can be found on the GOV.UK website.

Example: Fuel Benefit on a BMW 3 Series

Take a common company car such as a petrol BMW 3 Series (e.g. 320i/320d) with CO₂ emissions of 155g/km.

Taxable fuel benefit calculation:

£28,200 × 37% = £10,434

Tax Cost of Free Fuel

• Basic rate taxpayer (20%): £2,087

• Higher rate taxpayer (40%): £4,174

• Additional rate taxpayer (45%): £4,695

On top of this, National Insurance contributions are also payable, as the benefit is treated like salary:

• 8% on earnings above £12,570

• Additional 2% for earnings between £12,570 and £50,270

Is Free Fuel Actually Worth It?

Using the BMW example above, let’s assume:

• Petrol price: £1.37 per litre

• Fuel efficiency: 10 miles per litre

A basic rate taxpayer would need to drive around 15,234 private miles per year just to break even. That’s roughly 65 miles per working day, assuming 240 working days a year.

At this point, the cost of the fuel consumed privately would be similar to the tax paid on the fuel benefit—and that’s before factoring in NIC.

When Does the Fuel Benefit Make Sense?

Using the same BMW example:

• Less than 15,234 private miles per year
  → The fuel benefit is unlikely to be worthwhile

• More than 15,234 private miles per year
  → The fuel benefit may start to make sense

Employees should compare the tax and NIC cost of the fuel benefit with what they would actually spend on fuel personally. If the tax cost is higher, it may be worth asking the employer whether they would offer additional salary instead for opting out of the fuel scheme.

What About Company Vans?

Employees with company vans who use fuel privately may also be subject to a fuel benefit charge. Unlike cars, there is no mileage-based calculation.

For the current tax year, the flat-rate van fuel benefit charge is £769.

Practical Takeaway

For many employees, the most cost-effective option is to:

• Opt out of the company fuel benefit

• Pay for private fuel personally

• Reclaim business mileage at HMRC’s approved rates

In many cases, this approach results in a lower overall tax bill and greater clarity over actual fuel costs.

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