DRIVERS who receive free fuel for private mileage will see their tax bills go up in the next financial year, despite a partial rates freeze.

Employees who have private fuel paid for by their employer pay tax based on a value of £14,400. This will remain the same for 2004/2005.

Drivers pay BIK tax on a percentage of the £14,400 bill according to the emissions of their company car, mirroring the company car tax system. Effectively, the charge is the same as receiving another company car worth £14,400.

Therefore, tax increases of up to 10% will mirror the increases in company car tax, with only drivers of the cleanest or dirtiest cars escaping a rise in their bill.

For example, the driver of the Citroen C3 1.4LX featured in the table at the top of the page will pay tax on £2,160, the same as the current financial year. It is also a larger tax liability than the car itself.

For a BMW 320d EIV, the tax bill would be £2,160 (£14,400 x 15%) and would rise to £2,304 next financial year (£14,400 x 16%).

Janet Eastwood, head of product management (fuel) at Arval PHH, operator of the AllStar fuel card, said: 'Although the nominal vehicle value of £14,400 was not changed, the tightening bands for 2004-2005 will result in increasing benefit-in-kind (BIK) tax bills.

'A company driver in a petrol BMW 525i SE, achieving 30 mpg, paying 40% tax and getting free fuel, will have paid £1,670.40 for 2003-4.

'From April this year that BIK bill will rise to £1,785.60, an increase of £115.20, or 7%.'

The rise in this case would mean the amount of private mileage that a driver will have to do in order to break even will also go up, from 14,364 to 15,354 miles a year.

Eastwood added: 'Enough tax increases will feed through to make fleet decision-makers and employees a bit more wary.'

The tax is intended to drive motorists out of the free fuel regime by taxing them more than the fuel they receive is worth.

However, for many, it also encourages them to cover excessively high mileages to ensure they use enough fuel to cover their tax bill. Over the past few years, industry experts have said there is little value in free fuel, as companies also have to pay National Insurance on the charge as well.

Overall, they say it is better for companies to find other ways to pay staff and scrap free fuel altogether.

Engine size cc: Diesel…Other 1,400 or less: £865 £930
1,401 to 2,000: £865…£1,175
2,001 or more: £1,095…£1,730

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