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Fuel policy paved with good intentions

A company claimed the employees made good the cost of fuel used for private journeys, as they followed strict company policy, but failed to produce adequate records to show this was the case.

10th Jun 2020
Tax Writer
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Refueling car

Contract Services (Millenium) Limited (TC07662) provided a select number of employees with company cars. They could use those cars for private and work purposes, and they were entitled to fill-up at the company’s fuel pump. However, the employees were required to either replace or repay the company for all fuel they used privately.

The FTT had to determine whether Contract was liable to Class 1A NICs on the provision of fuel to employees and whether the company had acted carelessly in the provision of inaccurate returns.

Tax bill

In October 2017, HMRC issued decisions in respect of undeclared employee benefits in 2012/13 to 2016/17. After a review only the taxation of car fuel benefits remained in dispute, leading to a charge of £5,525.10, plus penalties of £828.74 based on a careless inaccuracy.

Why was the fuel taxable?

The cash equivalent of car fuel benefit is nil only if conditions A or B of ITEPA 2003 s 151 are met.

Under condition A the employee is required to (and does) “make good” the whole of the expense related to their private use to the provider of the fuel. Condition B is met where the fuel is made available only for business travel.

Contract argued that both Conditions A and B were met. In respect of condition A, the ethos and policies of Contract were such that none of the employees would use fuel for private purposes without reimbursement of the cost. Further, if an employee were caught doing so, Contract would regard them as having stolen that fuel and the employee would face disciplinary action and perhaps even dismissal.

In respect of condition B, Contract argued that the fuel was only made available for business use in that use without reimbursement would be theft.

Lack of records

Despite Contract’s argument that it was clear company policy that employees must not use its fuel for private purposes unless they replaced or repaid the fuel, there was no evidence that Contract carried out any checks to prevent or oversee such private use.

Contract also submitted that while there was an obligation to retain existing records, there was no obligation to create records and that a failure to create records did not preclude it from establishing a nil cash equivalent in respect of the fuel benefit.

However, one employee (Cunliffe) did have records relating to his mileage. This proved that his mileage had all been work-related, but where there had been periods of private use in the period between 9 April 2018 and 30 April 2018, there were records to show that the cost of fuel used for private journeys had been reimbursed.

Burden of proof

The FTT noted that, while the company ethos established that the employees should not have used the fuel for private purposes without reimbursing the costs, no evidence was provided that the employees (other than Cunliffe) in fact did not use fuel for private use without reimbursing the costs.

Ultimately, the FTT found that there was insufficient evidence to establish that, on the balance of probabilities, any of the employees did not use their cars (and therefore the fuel) for private purposes, or alternatively that they did use the fuel for private purposes and either reimbursed or replaced that fuel.

Contract’s appeal was dismissed, save for Cunliffe, where the appeal was allowed.


The FTT found that a reasonable and prudent taxpayer would have realised that there was insufficient evidence to justify a nil cash equivalent being reported on the P11D returns.

Further, the absence of records meant that Contract could not check whether its company policy was being followed, despite HMRC highlighting during a 2011 compliance check into Contract’s PAYE records that improved records should be kept regarding the fuel provided by the company.

Accordingly, the penalties in respect of the fuel benefit were upheld (save for those levied in respect of Cunliffe).


Despite being told to keep improved records, Contract failed to do so. As a result, during the appeal, the main evidence Contract could provide was an assertion that a strong company ethos would mean no employee would take private fuel without reimbursement.

Clearly, Contract would have been well served to have kept adequate records, and other companies in a similar position would be well advised to do the same.

Replies (1)

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By pauljohnston
17th Jun 2020 10:16

So having read the above Contract must have considered a number of employees for dismissal and also prosecution for theft.

In realty I hope all the employees except cunliffe would have to make good the stolen fuel and the penalty.

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