The Inland Revenue revealed this week that its tax experts are investigating how it will tackle the potential tax charge incurred by employers paying congestion charges.
This dramatic news will force company drivers and fleet departments to keep detailed records of every journey made that incurs a congestion charge, distinguishing between business and private journeys.
While no benefit-in-kind tax will be due on business trips that incur congestion charges, drivers will be liable for the tax if their employer pays for charges generated on private journeys.
London is scheduled to be the first city to introduce the controversial congestion charging scheme, levying a £5 per day fee for every vehicle that enters the congestion zone, amid claims that many cities are backing away from the proposals.
Employers will be able to set-up charge accounts to pay centrally for congestion, logging all their vehicles on the central database responsible for policing the system. They will also be able to buy weekly, monthly and yearly passes.
But unless employers recharge drivers for any congestion charges arising from private journeys, the employees will face benefit-in-kind tax on the value of each of the £5 per day charges that relates to a private trip.
In addition, employers could be liable for National Insurance Contributions on private journeys that are 'free' for drivers.
There will be no volume-related discounts for congestion charges incurred by fleets, even if they have large numbers of essential vehicles entering London every day, so at least employers will be able to deal with a fixed £5 per day charge.
The charges will only apply from Monday to Friday between 7am to 7pm, but within this timeframe employers will have to justify which charges relate to business trips and which relate to drivers on holiday or drivers simply commuting to and from work - journeys not considered 'business' trips under the current benefit-in-kind tax regime.
Alastair Kendrick, director of PAYE/NI solutions for Ernst & Young, warned of an 'adminstrative nightmare' for employers.
He said: 'The Government vowed to cut red tape for employers, but this is set to significantly increase it. You can not underestimate the additional administration this could involve.'
Mary Braim, Inland Revenue advisor on employee benefits, said: 'If there is an element of private use then that is a benefit-in-kind and the issue is being passed to our technical department to consider more closely.'