The 2026/27 tax year brings updated benefit-in-kind rates following the Autumn 2025 Budget. If your organisation provides company vehicles with private fuel, here is what has changed and what your payroll team needs to action.
What Is the Company Car Fuel Benefit Charge?
The fuel benefit charge applies when an employer pays for fuel used on private journeys in a company vehicle — including the daily commute. HMRC treats this as a benefit in kind (BiK), meaning the employee pays income tax on a notional taxable value, and the employer pays Class 1A National Insurance Contributions (NICs) on the same amount.
Partial reimbursement does not reduce the charge. To avoid it entirely, the employee must repay the full cost of all private fuel used during the tax year.
Updated Rates for 2026/27
Following the September 2025 CPI uprating, the headline charges are:
| Benefit | 2026/27 Rate | Change |
|---|---|---|
| Car fuel benefit multiplier | £29,200 | +£1,000 |
| Van benefit charge | £4,170 | +£150 |
| Van fuel benefit charge | £798 | +£29 |
How the Charge Is Calculated
The taxable value is not based on actual fuel consumed. The formula is:
Taxable value = £29,200 × appropriate percentage
The appropriate percentage is set by the vehicle’s CO2 emissions, running from 2% (zero-emission electric) to 37% (155g/km+). Diesel vehicles not meeting the Euro 6d (RDE2) standard attract a 4% supplement, capped at 37%.
Example: A petrol car at 120g/km carries a 29% appropriate percentage.
- Taxable value: £29,200 × 29% = £8,468
- Basic-rate tax (20%): £1,693.60 per year
- Higher-rate tax (40%): £3,387.20 per year
- Employer Class 1A NICs (15%): £1,270.20 per year
If an employee’s actual private fuel spend is less than their resulting tax liability, repaying the fuel directly to the employer is the more cost-effective option.
HMRC Advisory Fuel Rates from 1 March 2026
These rates apply to business mileage reimbursements in company cars, and to employees repaying private fuel costs. HMRC updates them quarterly (March, June, September, December).
Petrol
| Engine Size | Petrol | LPG |
|---|---|---|
| 1400cc or less | 12p | 10p |
| 1401cc–2000cc | 14p | 12p |
| Over 2000cc | 22p | 19p |
Diesel
| Engine Size | Diesel |
|---|---|
| 1600cc or less | 12p |
| 1601cc–2000cc | 13p |
| Over 2000cc | 18p |
Electric: 7p per mile (home charging), 15p per mile (public charging)
Hybrid: Treated as petrol or diesel — apply the relevant engine-size rate above.
Reporting: P11D or Payrolling?
Both options remain valid for 2026/27.
P11D: Submit by 6 July 2026. Pay Class 1A NICs via P11D(b) by 19 July (22 July electronically). Issue copies to employees by 6 July. See our P11D guide for employers for full details.
Payrolling: The taxable value is added to the employee’s pay each period and taxed in real time through PAYE. P11D forms are not required for payrolled employees, though P11D(b) for Class 1A NICs is still needed. Registration with HMRC must be in place before the tax year starts — it cannot be applied retrospectively. Our guide to payrolling benefits in kind covers the process in full.
Mandatory Payrolling from April 2027
From 6 April 2027, payrolling of benefits in kind becomes mandatory for most employers. P11D reporting will no longer be the default. Full HMRC guidance is available on GOV.UK.
2026/27 is the last full year in which P11D remains the standard option. Using it as a voluntary trial run for payrolling now gives your team time to test configurations, update tax codes, and communicate changes to employees — before mandatory enrolment applies.
Record-Keeping Requirements
Where an employer seeks to avoid the fuel benefit charge—by having employees repay the full cost of their private fuel—HMRC requires clear, auditable records to support that position. Without adequate documentation, HMRC may apply the charge regardless.
What Records Are Required
- Mileage logs that clearly distinguish business journeys from private journeys, including the commute
- Fuel receipts or records confirming the cost of fuel purchased
- Records of repayments made by employees to the employer for private fuel costs
- Evidence that the repayment amount covered the full cost of private fuel used
The burden of proof rests with the employer. A reliable mileage capture process — whether through a dedicated system or integrated with your expense management platform — is therefore not merely helpful; it is the foundation of a defensible position if HMRC raises questions. Capture Expense integrates mileage tracking directly with payroll, which simplifies the process of consolidating and validating this data.
Consequences of Incorrect Reporting
Errors in company car or fuel benefit reporting can result in:
- Penalties for inaccurate P11D submissions, assessed by HMRC on a sliding scale depending on whether the error is classified as careless, deliberate, or concealed
- Interest charged on late or underpaid tax
- A formal HMRC compliance review covering multiple tax years in more serious cases
The most effective protection against these outcomes is accurate data, timely reporting, and using the correct rates — which is why reviewing your configurations at the start of each tax year is sound practice.
Speak to Just Payroll Services
Managing company car and fuel benefits accurately (and keeping pace with changes such as mandatory payrolling) requires the right processes and the right support. Whether you are reviewing your 2026/27 configurations, planning the transition to payrolling, or looking for a fully managed payroll service that handles benefits in kind as standard, Just Payroll Services can help.
Our CIPP-qualified payroll specialists support organisations across the UK with compliant, accurate payroll administration. Find out more about our outsourced payroll services or get in touch with our team to discuss how we can support your organisation.