Stealth tax for company car drivers

Company car drivers face a 16 per cent tax increase on their petrol bills, as the Government was today accused of bringing in yet another stealth tax.

Drivers who pay for their petrol with a card which can then be charged back to their employers will find themselves paying far more for the perk.

The card is used by company staff for business and private mileage and, as it can be used for personal travel, it is regarded as a taxable benefit by the Inland Revenue.

But Gordon Brown has decided to increase the tax on the cards by 16%, meaning that staff would have to drive many more miles to make the fuel benefit worthwhile. A Ford Mondeo 1.8 driver, for example, who currently pays £984 on his card for the year, will pay an extra £156, pushing it up to £1,140.

Drivers of cars over two litres will see their annual tax bill for free fuel rise by £232, from £1,448 to £1,680 a year, if they are higher-rate taxpayers.

Staff are liable for the full amount of tax from the moment they take the perk. If they decide to reject it after 6 April, when the tax rise comes into force, they would have to repay their company for the cost of the petrol they have received.

Alastair Kendrick, of accountants Ernst and Young, said today that the move could be seen as a stealth tax.

"This 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." He said that for a large number of drivers the fuel card was increasingly looking as if it was not worth keeping.

The changes were announced in a press release which was not flagged up by ministers. Had the change not been spotted, the first many motorists would have known about it would have been when it was made public by Chancellor Gordon Brown in his budget on 17 April.