Fleet News

Fuel tax trap fears over Budget delay

THE Treasury is forcing more than 800,000 company car drivers to walk blind into a potential tax trap by postponing this year's Budget until after the start of the new financial year.

Chancellor of the Exchequer Gordon Brown announced last week the Budget would be held on Wednesday, April 17, a month later than normal.

The delay, due to Gordon Brown being granted compassionate leave following the death of his baby daughter, means companies and employees will be left in the dark regarding proposed increases to the tax charge on free fuel for private mileage until after drivers have committed to the benefit for another year.

The fuel scale charge is an 'all or nothing tax', so if drivers have one drop of free fuel for private mileage from their employer, they become liable for an entire year's tax bill.

The only way out of a steep tax hike is for drivers to repay the full cost of any free fuel received for private mileage.

Inland Revenue officials have revealed that once the tax hike is unveiled - and the Government is committed to a minimum 20% above inflation increase - it will be backdated to the start of the tax year. This could mean that drivers will not pay tax on free fuel in April, but then face a double tax whammy in May to catch up with unpaid tax.

A spokeswoman for the Inland Revenue said: 'There is no way out of it. 'The tax charge will be backdated to the start of the tax year and under a five-year plan, there should be a 20% increase in the scale charge plus inflation. However, we have no idea what the new rates will be.'

Tax experts are warning the confusion could delay companies' vital decisions on whether to continue offering the benefit, despite the risk that many drivers could be spending more in tax on free fuel than the benefit is worth.

Tax director Alastair Kendrick, of accountancy firm Ernst & Young, said: 'The bottom line is that drivers could end up paying two months tax in one go. People already find it difficult to understand the tax system and this confusion just provides an excuse to defer on a decision over providing a very costly benefit to drivers.'

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