Fleet News

Drivers facing 16% hike in free fuel tax

THE Inland Revenue has raced against the clock to announce fuel scale charges (the basis for taxing company car drivers who receive free fuel for private motoring) before the start of the new tax year.

Fleets had feared that the fuel scale charges for 2002–03 would not be published until the Budget on April 17, a delay that could potentially have cost employers and drivers millions of pounds.

However, drivers receiving free fuel will still face a sharp tax rise from April, after the Treasury announced a 16% increase in the fuel scale charges for the 2002/3 financial year.

The hike is the final part of a five-year campaign of planned 20% increases in the fuel scale charge, added to the prevailing movement in petrol prices. Because the price of fuel has fallen since last March, the net increase is reduced to 16%.

Under the new charges, which come into force from April 6, drivers of petrol-engined cars of 1,400cc or less will face a tax charge of £2,240 (2001/02 financial year: £1,930), payable at their marginal income tax rate of 22% or 40%. The tax charge for drivers of diesel-engined cars in the sub-1,400cc engine band will be £2,850 (2001/02: £2,460).

For engines of 1,401cc-2,000cc the scale charge for both petrol and diesel engines will be £2,850 (2001/02: £2,460), while for petrol or diesel engines displacing more than 2.0-litres, the charge will be £4,200 (£3,620).

However, the new charges have ignored calls from environmental groups for gaseous fuels to be taxed on a separate scale, and LPG and CNG will be taxed the same as diesel.

As an example, a 40% taxpayer driving a 2.4-litre Volvo S60 diesel would incur a tax charge of £4,200. If his car achieved its average fuel economy of 43.5mpg at £3.42 per gallon (75.2ppl), the driver would have to travel 21,358 private miles, just to break even.

The fuel scale charge also incurs Class 1A National Insurance contributions for employers, making it an expensive perk to offer staff.

Fleet industry pressure led to the Government announcing next year's scale charges on Monday, and employers now have just over two weeks to help drivers who receive free fuel to decide whether the hike in scale charges means they will pay more in tax than the value of the free fuel.

The unexpectedly early release of the figures has at least protected employers and their drivers from making a 'blind' decision on whether to continue with free fuel.

Currently, the fuel scale charge is an 'all or nothing tax' so if a driver receives even one drop of free fuel, they become liable for a whole year's tax, even if they wanted to reject the 'perk' as soon as the scale charges were announced. The alternative would be to repay their employer for every penny of the free fuel received.

The Treasury had planned to put off the announcement of the hikes in fuel scale charges until the delayed Budget day, April 17. But this would mean drivers would already have committed to the tax for another year.

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