Fleet News

Driver confusion over free fuel tax treatment

COMPANY car drivers do not understand fundamental changes to the way they will pay tax on the receipt of free fuel for private motoring from the start of the next tax year.

Fears among employees are rife that their tax bills will escalate sharply, when in fact many could see their tax liability fall.

Drivers currently pay tax on a fixed benefit charge set by the Government according to their company cars' engine size.

For example, company cars whose engines displace more than 2.0-litres incur a benefit charge of £4,200. Employees then pay tax at their marginal income tax rate of either 22% or 40% on the benefit e.g £4,200 x 40% = £1,680.

But from April 6 next year, the Government is scrapping the current rules in favour of a CO2-based system.

The Government will set a nominal value for the perk – £14,400 in the 2003-04 financial year – and drivers will face a benefit charge based on a percentage of this sum determined by the carbon dioxide emissions of their cars.

The percentage is calculated on the same scale as the new CO2-based company car tax system.

For example, the driver of a 2.0-litre car that emits 215g/km of CO2, would pay tax on 27% of the benefit charge of £14,400 e.g 27% x £14,400 x 40% = £1,550.20.

But according to business outsourcing solutions firm Overdrive, drivers could misunderstand the rules and assume they have to pay tax on the full £14,400, creating a bill of nearly £6,000.

A spokesman for the firm said: 'Although the trend has been for drivers to give up free fuel because of repeated tax rises, 2003 could see some drivers take up the benefit again, because their tax will fall.

'However, drivers could misunderstand and besiege employers wanting explanations. To head off trouble, employers need to provide not only explanations but individual calculations for drivers well before January, when the Inland Revenue starts sending out the new tax codes.'

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