Fleet News

Dual strategy needed for new free fuel rules

FLEETS are being urged to adopt a 'dual strategy' towards free fuel for company car drivers as the basis for taxing the perk switches from engine size to emissions.

Godfrey Davis Contract Hire (GDCH) claims that as a rough rule of thumb, most standard rate tax payers will benefit if employers provide fuel, while higher rate tax payers should buy their own fuel for private journeys.

From April 2003, the Government will determine annually a 'gross fuel cost' (set at £14,400 for the tax year 2003/04) on which the fuel benefit is charged, then apply a formula similar to the company car tax charges introduced in April 2002. This means a car rated at an 18% emissions scale charge will have its fuel taxed at 18% of £14,400, giving the driver a tax liability of £2,592 – and an actual tax bill of 22% or 40% of this figure.

Nigel Underdown, director of marketing at GDCH, said: 'Previously, drivers producing the best fuel consumption figures within their band had to cover a greater number of private miles to profit from 'free' fuel, but under the new formula they will not be so disadvantaged.'

He used the example of two drivers in petrol cars, one with carbon dioxide emissions of 175g/km and the other at 200g/km, but both returning 35mpg. The driver of the first car would have to cover 6,200 private miles to benefit from free fuel, while the second would need to record 7,800.

'Drivers now have to balance the effect of the Car Benefit Charge Tax, which frequently favours the diesel option, against the possible disadvantage of driving a low consumption diesel when factoring in the Fuel Benefit Charge,' said Underdown.

He challenged the 'myth' that under current taxation the majority of drivers were better off paying for their own fuel.

Underdown said: 'Although there has been a migration away from 'free' fuel over recent years, standard rate payers only need to cover about 55% of the private mileage of their higher rate colleagues.

'With annual private mileage of company car drivers around 10,000 miles, most standard rate payers are better off inside company fuel schemes and this will not change.'

Fuel benefit charge break-even points
Model Fuel type Breakeven private mileage Breakeven private mileage
Standard rate (22%) Higher rate (40%)
02/03 - 03/04 02/03 - 03/04
Vauxhall Corsa 1.4 Comfort Petrol 5,650 - 6,550 10,300 - 11,900
Vauxhall Corsa 1.7Di Comfort Diesel 10,600 - 9,650 19,300 - 17,550
Ford Focus 1.8 Zetec Petrol 6,850 - 6,900 12,450 - 12,550
Ford Focus 1.8TDCi Zetec Diesel 9,100 - 8,250 16,500 - 15,000
Peugeot 307 1.6 LX Petrol 7,200 - 6,200 13,000 - 11,250
Peugeot 307 2.0HDi 90LX Diesel 9,600 - 8,700 17,400 - 15,850
Ford Mondeo 2.0 Zetec Petrol 6,500 - 7,200 11,800 - 13,100
Ford Mondeo 2.0TDCi Diesel 8,500 - 7,700 15,400 - 14,000
BMW 318i SE Petrol 7,200 - 6,900 13,100 - 12,600
BMW 320d SE Diesel 9,100 - 8,250 16,500 - 15,000
Audi A6 2.4SE Petrol 7,600 - 8,050 13,800 - 14,700
Audi A6 2.5TDI SE Diesel 10,350 - 8,500 18,800 - 15,500
2002/2003 - engine based
2003/2004 - emissions based
Source: Godfrey Davis Contract Hire

Leave a comment for your chance to win £20 of John Lewis vouchers.

Every issue of Fleet News the editor picks his favourite comment from the past two weeks – get involved for your chance to appear in print and win!

Login to comment


No comments have been made yet.

Compare costs of your company cars

Looking to acquire new vehicles? Check how much they'll cost to run with our Car Running Cost calculator.

What is your BIK car tax liability?

The Fleet News car tax calculator lets you work out tax costs for both employer and employee