New tax blow to company cars

COMPANY car drivers have been hit by an inflation-busting 16% tax rise on their petrol, it has emerged. Chancellor Gordon Brown's move, which will leave up to three million motorists paying hundreds of pounds more for their fuel, was promptly condemned as yet another New Labour stealth tax.

The increase, which was announced in an unheralded Government Press release, is targeted at company car drivers who are able to get 'free' petrol by paying with a special card which is charged back to their employer. The card can be used for business and private mileage and its use for personal travel means it is deemed a taxable benefit by the Inland Revenue.

For the Ford Mondeo 1.8 driver, for example, it means he currently pays £984 in tax on his fuel card for the year. But from April 6 he will pay an extra £156 to make the total card tax £1,140. The tax, which must be paid in full at the start of the tax year, will leave many company car drivers wondering if it is worth carrying on with the cards - and they have only until 6 April to make up their minds.

Alastair Kendrick, tax partner at accountants Ernst & Young, said there was no reason the Government could not have made the announcement months ago. 'This is a stealth tax,' he claimed. 'It has been sneaked out without any fanfare. It is clearly going to hit employees' pockets badly. They are also paying tax twice over - once when they buy the fuel and again when they use it.'

The rise also means company drivers will have to drive hundreds of miles more if their fuel perk is to remain worth keeping. Many may simply decide to ditch the cards and charge their companies for the mileage they use instead.

These massive increases in fuel car taxes are yet another nail in the coffin of the company car - increasingly hard hit by the Government. They are also the latest in a long line of fuel-related fiascos for the Government - from the petrol price protests that saw the country almost grind to a halt, to the anger over a new system for taxing company cars according to their carbon dioxide emissions.

Experts say this car tax system - which also comes into force on 6 April - will penalise those who rely on their cars for work, while rewarding 'perk' drivers. The stealth tax row over fuel cards can only add to the confusion.

Motoring experts said the Government should have announced the changes over the fuel cards months ago to give drivers the chance to work out if they should keep them.

If the announcement had not been spotted, the first most drivers would have known about it would have been when it was made public by the Chancellor in his Budget on 17 April. That would have left most of them already committed to a year's payment on their card at the new higher tax rate - making it difficult to opt out of the scheme.

Kendrick said: 'There is already a large number of people for whom the fuel card simply isn't worth keeping. The threshold of private miles a motorist has to cover to make economic sense is growing all the time. One problem is that because the fuel cards are so easy to administer, many motorists cling on to them even though it is costing them money. It's a form of comfort blanket. But such drivers are unwittingly putting hundreds of pounds of their hard earned money directly into the Chancellor's coffers.'

After the hikes, the driver of a Volvo S60 D5 2.4 litre diesel will see their annual tax bill for free fuel rise £232 from £1,448 a year to £1,680 a year, if they are a higher rate (40%) taxpayer. Experts at the trade magazine Fleet News said that for such a driver to break even on the fuel card perk he would have to drive at least 21,368 private miles.

For drivers of cars between 1,400cc and 2,000cc, annual payment for the 40% taxpayer rises by £156 to £1,140. Cars over 2 litres will see a rise of £232 to £1,680.

The perk is a one-off all-or-nothing deduction which comes into effect - in full - the moment a card is used to pay for the very first drop of fuel. The motorist is then immediately liable for a whole year's tax. If they then want to reject the perk they have to repay their employer for every penny of fuel received.

The Inland Revenue said : 'It may come as a surprise to some people, but it is not a stealth tax. The Chancellor first announced in 1998 that he was introducing a five-year programme of a 20% increase above the pump price. He was very open about it.'

When asked how motorists were supposed to keep track of every change from an announcement made four years ago, the spokesman said: 'There is nothing sinister about it.'