Interestingly fuel cost is seen by many as an inevitable expense and therefore often poorly managed.
This is surprising as typically fuel is at least 25% of the total operational cost of a vehicle with depreciation usually being the only greater cost.
Fuel cards
Fuel cards are a popular and effective way of managing fuel purchases, which for many fleets can amount to a huge number of very small transactions per month. The fuel card provides a robust method of managing these frequent transactions via central billing. The fuel cards have the option to limit purchases (e.g. restrict those with diesel cars to purchase only diesel fuel) and reduce the potential for abuse
Detailed fuel reports can also be obtained to help analyse both an individual vehicle's fuel economy and consumption and that of the fleet overall. This information is extremely powerful and can be used to identify high efficiency vehicles, poorly performing vehicles and those employees who are underperforming against expected fuel economy levels. Fuel cards are most commonly used for light commercial fleets, and for company car users who are provided with free fuel for private use, however their benefits should not be overlooked for company car drivers who are required to pay for their private mileage.
It is also important to note that the provision of fuel cards is not the same as the provision of fully expensed company cars. The fuel cards are merely a purchasing and management tool, and employees can make good the cost of the fuel for private use as a percentage of the actual fuel cost or at a fixed pence per mile rate.
The administrative burden would be similar if no fuel card was provided and the employees were being reimbursed for business mileage.
Fuel reimbursement by fixed mileage rates
There are two ways fixed fuel rates may be applied.
The first is where the employer pays for all the fuel up-front through a fuel card, and the employee reimburses the employer for the fuel used for personal mileage via a fixed mileage rate.
The second is where the employer pays the employee a set mileage rate for any business mileage.
Reimbursement for fuel should be fair and transparent as this is often a contentious area for employees with the current high cost of fuel. It is important not to provide too generous rates as these may encourage employees to use cars with poor fuel efficiency, or create an incentive to drive unnecessary mileage to supplement the employee's income. At best generous fuel rates will remove the driver's focus of driving fuel efficiently, at worst it can be an extremely costly system for the business.
To remove some of the contentious nature of fixed mileage rates many companies use HM Revenue & Customs' (HMRC) company car advisory fuel rates. These rates are tax neutral and do not incur any Benefit-In-Kind (BIK) tax on their payment.
The rates were effective from 1st December 2009 and are reviewed twice a year. Any changes will take effect on 1st June and 1st December and will be published on the HMRC website.
Using the HMRC rates is the most widely used method of fuel reimbursement as it is simple to administer, however it does not provide any management data to assess vehicle/ driver fuel efficiency.
Fuel reimbursement at cost
The purest method of fuel reimbursement, and one that provides good transparent cost control is prorating the actual cost of the total fuel spend to the element of mileage that is private. This system ensures that however cost effectively the fuel is purchased at the pumps, and the efficiency by which the vehicle is driven, the actual cost is passed to the employee (i.e. the more efficiently they purchase the fuel and drive, the lower the private mileage cost to the driver).
This requires comprehensive fuel costs and mileage records to be kept, so that the cost of the fuel each month is collected along with business and total mileage. From this, the private mileage element can be calculated, and this percentage of the mileage can be used against the fuel cost to derive the true cost of the private mileage. This technique can be used by the employer to reclaim private fuel costs when the employer provides a fuel card and provides all the fuel up front, but can equally be used if the employee buys the fuel initially and gets reimbursed by the employer for the business element of the fuel costs. For this latter situation careful management is required to ensure accurate fuel costs are captured by the employee to prevent abuse of the system.
Fuel reimbursement at cost is a preferred method of environmentally focused fuel management as it enables careful efficiency monitoring as well as provides incentives for the employee to drive a fuel efficient car and purchase fuel cost effectively.
This method is not commonly used, even though it provides the most accurate reimbursement system, often due to higher levels of administration.
Fuel bunkering
For larger fleets with high fuel usage there is the option of bunkering fuel. This will typically only be viable for a business that operates a significant number of vehicles from a single site or depot, and is most commonly used for commercial vehicles and HGVs where the fuel requirement is high.
Setting up fuel bunkering can be very expensive as the cost of the initial installation, and the associated ongoing Health and Safety and environmental protection requirements are significant. The storage and dispensing of petrol has far greater Health and Safety regulations attached and hence diesel is the most commonly bunkered fuel (and the fact commercial vehicles are predominantly diesel). Cheapest fuel is obtained by buying directly from the supplier but the costs of setting up and maintaining the bunkering site must be considered in the financial equation. It is very important that there is a robust fuel dispensing system to monitor the amount of fuel dispensed, and the vehicle or driver who is drawing off the fuel. Without robust procedures in place the opportunity for abuse is significant, however many swipe card/ key tag systems exist to assist in managing and monitoring who draws off fuel, and in what quantity.
