THE Government has pushed ahead with proposals to base the fuel scale charge on vehicle carbon dioxide emissions from 2003 despite warnings it could force employers into costly policy delays.

A new consultation document issued by the Inland Revenue asks fleet decision-makers to give their opinions on restructuring the charge, the basis for calculating the personal tax due from a driver receiving free fuel for private mileage.

Leading tax expert Alastair Kendrick, of Ernst & Young, has attacked the timing of the consultation, as many employers are reviewing whether to provide free fuel, following four years of tax increases of 20 per cent above inflation, which has meant some drivers are paying more in tax than the value of free fuel they receive.

Under the new proposals, fleets have three options for the future shape of the tax - currently based on engine size and fuel type - all focused on CO2-based taxes, but designed to be easy to understand for employees and employers.

The first links the benefit charge directly to the CO2 emissions of a company car, so the driver of a vehicle emitting 185g/km of CO2 would pay 185 times a set fee. The second option multiplies the percentage of company car tax a driver pays, based on vehicle emissions, by a set fuel scale charge fee. This would take into account the 3 per cent supplement for diesels and discounts for alternatively-fuelled vehicles in the new CO2-based company car tax regime.

The final option is to structure the free fuel benefit charge into four CO2 bands - up to 150g/km, 151-165g/km, 166- 185g/km and over 185g/km - in the same way Vehicle Excise Duty bands work. A flat rate system based on engine size would continue for cars without CO2 figures.

• Copies of the consultation document are available on the Inland Revenue website.
• Comments can be emailed to julia.vinall@ir.gsi.gov.uk.