As the financial year progresses, many small businesses are busy with budgets, forecasting, and tax preparation. But one task that often gets overlooked is reviewing tax codes for company vehicles. It may not sound like a priority, but this small annual review could have a big impact on how much your business pays, and how much you can claim.
In this guide, we’ll explain why tax code reviews matter, what to look for, and how it connects with your vehicle expenses, fuel usage, and record-keeping.
Why tax code reviews matter
Every company vehicle has a tax code assigned to it, determining how it's classified for benefit-in-kind (BIK) tax and fuel expense purposes. These codes impact how much you (or your employees) are taxed for using a company car, especially if there's any private use involved.
HMRC regularly updates vehicle-related tax rates and emissions brackets. If you don’t review these details each year, you might be using outdated information that costs your business more than it should, or worse, leaves you non-compliant.
Tax reviews also ensure you're properly reporting employee benefits. This is especially important if your team has started using electric vehicles, hybrids, or company-owned vans. These vehicles may fall under different classifications or qualify for exemptions and reduced rates.
What to check during a tax code review
When reviewing vehicle tax codes, SMEs should focus on the following:
- Vehicle usage: Is the car used solely for business, or is there personal mileage involved? Even minimal personal use can affect tax liabilities.
- CO2 emissions and fuel type: These influence the BIK rate. If you’ve switched to low-emission or electric vehicles, you may be entitled to tax relief.
- Employee reimbursement policies: Are you accurately reporting mileage claims? Are the right tax codes applied for drivers who use their personal vehicles for work?
- Vehicle age and write-down value: If your vehicles are nearing the end of their useful life, you may be eligible for different capital allowance rules.
Why it matters for fuel spend
Tax codes and fuel spend are closely linked. If a vehicle is misclassified, you might be under- or over-reporting fuel usage, which can affect VAT reclaims or your expense tracking. Getting the tax status right helps keep your accounts clean and HMRC-compliant.
This is especially relevant for small businesses that don’t have large finance teams. Overlooking these details can lead to errors that cause HMRC queries down the line, or even fines.
Fuel usage should be documented clearly to separate private mileage from business use. Failure to do so may result in a tax benefit charge that could have been avoided with correct classification and reporting.
How to streamline the process
Annual tax code reviews don’t need to be complicated. Here are a few ways small companies can make it easier:
- Maintain clear mileage records: Use mileage tracking tools or fuel card data to distinguish between business and personal journeys.
- Keep digital vehicle logs: Ensure vehicle details, usage patterns, and employee assignments are regularly updated.
- Assign responsibility: Give someone in your team the job of checking vehicle classifications and tax codes annually.
- Review with your accountant: If you work with an accountant or tax adviser, ask them to include tax code reviews as part of your annual check-in.
Where fuel cards can help
Having clear visibility over fuel spend makes it easier to separate business from personal mileage. That’s where fuel cards for small companies can play a role.
Using a fuel card:
- Keeps a centralised log of all fuel purchases
- Simplifies expense reporting with HMRC-compliant invoices
- Helps track driver and vehicle-specific fuel usage
- Reduces admin when reviewing annual fuel-related tax data
- Provides detailed reporting that supports mileage accuracy
Fuel card systems also allow small businesses to set limits on spend, define usage rules, and flag unusual activity – all of which help create a cleaner paper trail if HMRC ever asks to see your records.
Stay compliant and save
Tax code reviews are essential for small businesses looking to stay compliant and cost-efficient. With vehicle-related tax rules changing frequently, a yearly check is a smart move that can help prevent future issues and uncover potential savings.
By combining a simple tax code review with the right fuel tracking tools, you’ll have a stronger handle on your business vehicle usage, and a more accurate set of books when tax season rolls around.
And with tools like fuel cards, you can make tracking, reporting and reviewing much easier – freeing up your team to focus on the road ahead.
