In a two-stage reform of the rate, launched next month, drivers of vehicles with engines of less than 2,000cc will see an increase in the amount they can claim back from their employer tax-free over the next two years. The current tax-free and NIC-free eight band system, based on four engine size rates and two mileage bands, drops to six bands from the next financial year and to just two from April 6, 2002, paying 40p per mile for under 10,000 miles and 25p for higher mileages.
Drivers of engines below 1.5 litres benefit most, with increases of thousands of pounds in the rates for reclaiming mileage costs, or obtaining tax relief if the employer does not offer the full rate. A driver covering 10,000 miles in a Vauxhall Agila 1.2-litre will see the amount they can reclaim rocket from £2,600 for this financial year to £4,000 from April 6, 2002. Drivers of cars below 1.0 litre benefit most, with their rate rocketing from 28p per mile for the first 4,000 miles and 17ppm after to 40p for the first 10,000 miles and 25p thereafter.
The move amounts to a £40 million handout for small car drivers, countering criticism from environmental campaigners who said that the Government was encouraging drivers to cover high mileages in large-engined cars by paying them higher rates than small car drivers. Those who suffer the most will be drivers with car engines bigger than 2.0 litres and who cover high mileages. Effectively they'll be hit by a double whammy as that will be the same group of drivers whose tax is set to rocket under the new carbon dioxide company car tax regime launched next year.