The European Commission has accepted Government plans to vary the flat rate of VAT charged for private mileage to one based on the CO2 emitted by various car models.
The Commission said: ‘The existing arrangement has effectively enabled the UK to simplify the charging of the tax…and the new system…will have a similar effect.
‘A charge geared to a higher number of bands based on CO2 emissions will more accurately reflect private consumption than the existing bands based on engine sizes and types of fuel.’
Fleet management consultant Colin Tourick said: ‘The existing system has the advantage of being very simple for fleets to operate. Basing the charge on CO2 emissions rather than engine size/fuel type makes sense because it changes another element of business car taxation in line with the Government’s ambition to reduce emissions from all road vehicles – which can only be a good thing for all of us.
‘Hopefully, this will be another small step to encourage fleets to choose low emission cars. So long as the scale charges are reasonable and tax-neutral, and the higher rates are introduced slowly, there will be little for fleets to complain about.’
The commission is proposing that the new system be allowed from May 1, 2007. The simplified system will also be optional, as with the old system – companies can still account in detail for private mileage.
Mike Waters, head of market analysis at fleet and fuel management company, Arval said: ‘We would cautiously welcome any moves to encourage environmental efficiency.’
Stewart Whyte, director of consultancy Fleet Audits, said: ‘These changes will mainly affect back-office operations, such as pay-roll, rather than the fleet manager.’