The fuel scale charge is used to calculate the amount of tax an employee pays for receiving free fuel, and employers also pay Class 1A National Insurance Contributions on each employee's scale charge.
Under the current system, there are three fuel scale charges for petrol-engined cars and two for diesel cars, according to their engine size.
But from the 2003/04 tax year, the Government is planning to replace the current fuel scale charge system and introduce a carbon dioxide-based tax regime that strongly resembles the shape of the new company car tax system.
So, in the next tax year, instead of five fuel scale charges, there will be 20, all calculated as a percentage of a fixed, gross fuel cost, with percentages ranging from a minimum of 15% to a maximum of 35%. The percentage at which a driver pays the fuel scale charge will be exactly the same as the percentage used to calculate his or her company car tax under the new CO2-based system
This will include a 3% supplement for diesel vehicles and a raft of discounts for alternatively-fuelled cars which could mean employees paying less than the 15% minimum charge.
So a driver who pays a benefit-in-kind tax charge of 18% of the price of his or her company car will face a fuel scale charge of 18% of the gross fuel cost. And a driver who currently pays a benefit-in-kind tax charge of 25% of the price of his or her company car will face a fuel scale charge of 25% of the gross fuel cost.
Each year, the Government will announce a gross fuel cost on which all drivers will pay tax, beginning with a £14,400 charge in 2003/04.
The fuel scale charge, expressed as a percentage of the gross fuel charge, will also be used to calculate employer Class 1A National Insurance Contributions on the free fuel benefit. The current tax system is an 'all or nothing charge' making drivers liable for a full year's tax if they receive any free fuel for private mileage.
Under the new system, an employee can opt out of free fuel and only pay a proportion of the full annual tax charge, related to the part of the year they received the benefit. The amount of Class 1A NICs will also be proportionally reduced. However, opting back in will result in a full year's tax charge being applied.
An Inland Revenue statement said: 'This new charge was chosen because of its administrative ease, using a figure the employer has already worked with, so there will be minimal additional administration.'