More than 200,000 extra company cars should be on the roads during the first few years of the new tax regime because it will encourage more employees to ask for a car as part of their salary and cause those who have opted for cash over car to reconsider their decision.
And in an unprecedented move, a senior Government official has encouraged the move to company cars because it will ensure the use of cleaner, well maintained vehicles.
Steve McManus, assistant director of the personal tax division of the Inland Revenue, said: 'There has been talk of the demise of the company car. But as a result of this particular reform of company cars, we expect rather more than there are now. We expect people to give up cash and move back into company cars and the number could increase by 200,000 from about 1.74 million to nearly two million tax-paying company car drivers.'
Although there are an estimated three million company cars in the UK, the number of vehicles with personal use whose drivers have a tax liability is under two million, according to Inland Revenue statistics.
The remainder of the 'company car parc' is composed of rental vehicles, demonstrators, bodyshop courtesy cars and Motability vehicles which are counted as fleet vehicles in both manufacturer and Society of Motor Manufacturers and Traders statistics.
But with CO2-based company car tax replacing the current mileage-based system in 2002, many drivers could see their tax bill fall -especially low mileage drivers. The new rules mean some drivers could halve their liability – at a cost to the Inland Revenue of an estimated £100 million in the first three years - while staff not previously eligible for a company car could also ask for one.
McManus admitted that high mileage drivers' tax bills would mostly increase, as those covering over 18,000 miles pay 15% at present, but added: 'It may be that people driving their own cars may approach their employer for a company car.
'We recognise company cars are better maintained and have lower emissions and would be fairly happy with the result if people were giving up cash and taking a company car, provided the result was a newer, cleaner lower emissions car.
'On a broad brush analysis, there will be some cashing in and cashing out, but the final result will be 200,000 extra company cars, according to our estimates.'
He also gave further details of a rethink on Inland Revenue Approved Mileage Rates, formerly Fixed Profit Car Scheme, which reimburse drivers of private cars for business mileage.
Currently it pays more to drivers of larger-engined vehicles, but could become a single band system or even pay more to users of smaller-engined cars.
This would also significantly affect PCPs and personal leasing schemes, which rely on the current IRAMR regime as part of their calculations for whether drivers should cash in their cars.