In previous years, the Government simply increased tax on the benefit by 20% above the rate of inflation, in a bid to discourage drivers from taking it.
However, this year the system has changed, so that drivers pay tax on a set value for the benefit, which will be £14,400 for the 2003/4 tax year. Drivers pay tax on a percentage of the benefit, according to the carbon dioxide emissions of their cars, using exactly the same scale designed for the company car tax system.
Therefore, the taxable benefit could be very different compared with 2002 and there will be winners and losers.
According to AA Business Services, small and fuel-efficient cars will see little change, while for mid-range to large cars the 'free' fuel benefit might well become a tax burden, with drivers paying more in tax than the value of the fuel. The AA offers a tax calculator on its website so drivers can work out the break-even point for free fuel taxation at www.theAA.com.