Help to drive down your work fuel costs

Minimum wage

With high fuel costs, it is more likely that workers who receive low pay rates per hour are at risk of not being paid the minimum wage, when fuel costs are factored into the calculation. It is therefore vital that you regularly check your wages against your costs and talk to your employer about your pay if you think there is a problem.

Let us explain more:

The National Minimum Wage/National Living Wage (NMW/NLW) is the minimum pay per hour most workers are entitled to by law. Under the minimum wage rules, you should be paid at least the minimum wage for the hours worked in your pay period, for example, a week or a month.

If you are paid on an hourly basis, the calculation to work out if you have been paid the minimum wage involves taking your ‘minimum wage pay’ and dividing it by the number of hours worked in that pay period. The result should be equal to or above the minimum hourly rate for your age. So, for example, if you are aged 23 or over, the answer should be £8.91 or higher.

Your ‘minimum wage pay’ is the amount of pay you receive, before things like tax, National Insurance and pension contributions have been taken off, but after certain other deductions have been made – including costs you have incurred in connection with your work that are not reimbursed by your employer. This has the effect of reducing the amount of pay you are taken to have received from your employer.

For minimum wage purposes, we understand that where workers are using their own cars to travel in connection with work (which means travel while working for example, between clients/appointments, but not travelling between home and work), ‘costs’ are actual fuel expenses, rather than a flat rate like for tax (see below). If you use your car for both work and private purposes, it can be hard to work out the specific cost of the fuel used in travelling for work. However, if you keep a mileage log (of both work miles and total miles) and fuel receipts, the percentage of work use can be identified and so, therefore, can your costs.

All of this means that, in practice, employers need to reimburse fuel costs in full on top of a national minimum wage hourly base rate for workers who are on or around the national minimum wage. This will ensure the employer does not fall foul of the NMW rules. Alternatively, employers need to increase the worker’s hourly base rate so that there is enough ‘head room’ in it, to absorb the fuel costs without taking their average pay below the NMW.

You can find out more, and some examples in our guidance aimed at care workers. The examples are aimed at care workers as they can drive a lot of work miles getting between their clients, but the same points apply more widely.

Tax relief

If you have a job which requires you to  drive your own car and your employer does not reimburse your costs (or not fully reimburse them), you may be able to claim tax relief on anything up to 45p a mile from HMRC. This does not mean that you get the 45p a mile back from HMRC, but that you will get back the tax that you have paid on the 45p a mile.

The rate per mile depends on the type of vehicle:

The rate covers the costs of running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation (the decrease in value over time) of the vehicle.

Whether you can claim tax relief for your fuel costs will depend on the nature of your job. The rules about which journeys are allowable for tax are slightly different to the rules for the minimum wage. For example, occasionally journeys between home and work are allowable for tax purposes.

Strictly, if you are an employee, the law says travel expenses are only allowable for tax purposes if:

• You have to make the journeys in the performance of the duties of your employment (this may apply where the duties themselves inherently involve travelling such as a delivery driver or meter reader); or
• They are journeys which you make to or from a place you have to attend in the performance of your duties, which can include trips from your office or other work location to visit a customer or other workplace. This rule can also include travel directly from your home to visit a customer or to a workplace (but not where the expenses are those of ‘ordinary commuting’ – that is, travel between your home and a permanent workplace).

What the last bullet point means is that where the home to work travel is to a temporary workplace rather than your permanent workplace, tax relief is available. ‘Temporary’ for the tax workplace travel rules has a set meaning which unfortunately is not the same as the ordinary, natural meaning of the word!

You can find out more about the travel rules and about how HMRC apply them to different scenarios in HMRC’s booklet 490. Even though this booklet is referred to an employer booklet, it is useful for employees too.  

If you think you are entitled to claim tax relief, our guidance explains how to calculate and claim it: What if I use my own car for business purposes?.

To get tax relief, you have to make a claim to HMRC, but it is not usually that difficult and if you do it yourself, it is free of charge. If you are thinking of paying a tax refund company to help you make the claim, we recommend you read our guidance.

Note that to get tax relief, you must have paid some tax. Because of the level of the personal allowance (currently £12,570), people on low wages (especially if working part time) may not pay tax. Even if you do not earn enough to pay tax and therefore can’t make a claim for tax relief, the treatment of expenses for benefits often follows the treatment for tax purposes. This means that if your costs meet the tax rules, you may be able to deduct the expenses from your income for the purposes of benefits you claim, as we explain below.

Benefits

Tax credits

Work expenses that you incur yourself may reduce your income for tax credits purposes if your employer does not reimburse them. As a result, you may be able to get a higher award.

This is because a person’s entitlement to Working Tax Credit is based upon his/her level of taxable earnings – against which permitted tax deductions are taken. Permitted deductions can include travel expenses that are not reimbursed by your employer, that you are entitled to tax relief for (as set out above).

For example, a care worker who is paid £275 a week and incurs travelling expenses of £50 a week will have an annual income for tax credit purposes of £11,700 (£225 x 52), rather than £14,300 (£275 x 52), potentially meaning a higher tax credits award.

For tax credits, employment expenses are deducted from income if they are allowable for tax, even if full effect cannot be given to them for tax purposes because you do not earn enough to incur a tax liability. However, HMRC can use earnings information received from employers to set tax credits awards. This information does not include unreimbursed expenses amounts, so you will need to provide HMRC with revised earnings figures.

Universal credit

If you are on Universal Credit (UC) and incur expenses as part of your job, then similar rules apply.

The UC rules allow unreimbursed employment expenses to be deducted from income. The ability to deduct unreimbursed employment expenses from income is confirmed in the Department for Work and Pensions (DWP) ‘Advice for Decision Makers’ guide at H3140 onwards.

However, you should be aware that DWP normally use earnings information received by HMRC from employers (called real time information) to set UC awards. This information will not take account of unreimbursed expenses, so you will need to tell your UC work coach about them so that revised earnings amounts can be used. We understand this can be done via your UC online account journal.

More information

Find out more:

• if you are a UC claimant, see our news article Universal credit and unreimbursed expenses
• if you are a tax credit claimant, see our specialist website Revenue Benefits

If you need help with your tax or benefits, see our Getting Help pages.

Money Saving Expert offers some general tips on fuel savings.