Help to drive down your work fuel costs

Tax, benefits and minimum wage help with fuel costs

Petrol and diesel costs are currently relatively high and may continue to rise due to ongoing global tensions. If you have a job which requires you to drive your own car, you may already be aware that there is no legal requirement on your employer to pay or reimburse your fuel costs. However, there is a measure of protection built into the system for workers. 

Depending on your situation, if you are on the minimum wage, your employer may need to pay you more to comply with the minimum wage rules. You may also be able to claim tax relief for your fuel costs and/or have your fuel costs reduce your income for benefits purposes, potentially increasing your award. Read on to find out more.

Minimum wage

High fuel costs can push some low-paid workers below the minimum wage, even if their hourly rate looks correct. 

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 21 or over, the answer should currently be £12.71 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 certain costs you have incurred in connection with work that are not reimbursed by your employer. This has the effect of reducing the amount of pay you are treated as having received from your employer.

If you use your car for all your travelling, it can be hard to work out the specific cost of the fuel used for travelling in connection with 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.

You can find out more, including examples and a sample mileage log 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.

All of this means that, in practice, employers paying workers at or around the national minimum wage need to reimburse fuel costs in full on top of the worker’s hourly pay, to not fall foul of the 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 minimum wage.

Tax relief

If you have a job which requires you to drive your own car and your employer does not reimburse your costs (or does not fully reimburse them), for the 2026/27 tax year, you may be able to claim tax relief on anything up to 55p a mile from HMRC. This does not mean that you get the 55p a mile back from HMRC, but that you will get back the tax that you have paid on the 55p a mile.

The rate per mile depends on the type of vehicle you have, as set out in the Approved mileage allowance payment (AMAP) rates table in our guidance. 

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. 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. 

You can find out more about the travel rules and about how HMRC apply them to different scenarios in our guidance on travel expenses. 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?.

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 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

If you are on universal credit and incur expenses as part of your job, then they may reduce your income for universal credit purposes if your employer does not reimburse them. As a result, you may be able to get a higher award. You should be aware that reducing your earned income in this way, may cause you to fall under various thresholds within, or connected to, universal credit where they are set by reference to earning levels. You should speak to a welfare rights specialist to understand any impact based on your own personal circumstances. 

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.

In terms of the calculation, it is arguable that, for universal credit purposes, the difference between HMRC’s approved mileage allowance rate (for example, 55p a mile) and any employer reimbursement should be deductible from employed earnings so that claimants do not need to calculate a deduction based on actual motoring costs. This is not specifically confirmed in the DWP guidance. 

You should also be aware that universal credit uses earnings information received by HMRC from employers to set awards, which does not include unreimbursed expenses amounts. You will therefore need to tell the DWP about your work expenses and provide them with revised earnings amounts. We understand this can be done via your online account journal. For more information see GOV.UK.

Other tips 

Money Saving Expert offers some general tips on fuel savings.