Someone has a company car with a fuel card that the employer pays for. Each month, the business mileage is calculated against the total fuel purchased, the difference being the private fuel used. This private fuel cost is deducted from the employee's monthly salary atsource and is shown on their payslips as a negative figure under 'pay and allowances' rather than in the 'deductions' column with National Insurance contributions (NICs) and PAYE tax deductions. If the employee is therefore paying back the private fuel to the employer, is the fuel cost added to the employee's overall taxable pay figure? For example, if their monthly basic pay was £2,500, and private fuel deducted was £200, their total earnings (before tax and NICs) would be £2,300. Is their 'taxable income' £2,500 or £2,300?

Arthur Weller replies:
If you look at HMRC’s Employment Income manual (at www.gov.uk/hmrc-internal-manuals/employment-incomemanual/eim25555) it seems, from what you have written, that Condition A needs to be complied with (i.e. the employee makes good all the cost of private fuel). If you look at EIM25650 (first bullet point) you can see that 'making good' includes 'deduction from net salary or wages' (note the 'net' - i.e. not exactly as you have written). If the rules are fulfilled there will be no car fuel tax charge.