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After five years of increases in the income tax fuel scale charge – 20% each year, except 2001 (14%) – the government is considering reviewing the way the charge is structured from 2003. The intention will be to discourage the 20% of companies that still provide free fuel for private use in company cars. To bring it in line with company car tax, the charge will be emissions-based.

The current system is a flat-rate scale charge on any fuel an employer provides free for an employee’s private use, where the latter drives a company car. It applies unless the employee is required to pay back to the company the full cost of the fuel provided, which is why pay-and-reclaim systems administered through fuel cards are increasingly popular.

There are three possibilities for redesigning the fuel scale charge and all are in line with the new company car tax and vehicle excise duty.

Spencer King, marketing manager of Velo, says: “It makes sense to bring the fuel scale charge into line with company car taxation policies on carbon-dioxide emissions. It should make things simpler for individuals and employers.”

But many fleet managers are not well versed in the subject, says Martin Hender, director of fuel for ARVAL PHH Vehicle Solutions. “There is a lot of confusion,” he says. “This is underpinned by the fact that there are three highlighted options, and the government has invited opinions so that it can give a balanced response. We applaud the government initiative to promote cleaner motoring but are concerned that some of the complex schemes available could prove hard to administer and difficult to understand for all parties.”

The first option is to link the free fuel benefit charge directly to the levels of carbon-dioxide emitted by the vehicle. Emissions would be rounded down to the nearest 5g/km, in line with the new company car tax, and then multiplied by a set amount to determine the free fuel benefit charge. A lower multiplier could be set for cars with lower emissions.

The second possibility is to link the charge directly to the percentage figure used to calculate the car benefit tax, which ranges from 15% to 35% according to the emissions of the car. Discounts for more environmentally friendly fuel would apply. The percentage figure would be applied to a fixed sum to calculate the fuel tax. The final option would be to operate the fuel taxes in the same way as Vehicle Excise Duty. There are four emissions bands: up to 150g/km of carbon dioxide, 151-165g/km, 166-185g/km, and over 185g/km. The charge would also vary according to the fuel the car runs on.

King says he prefers the third option because it is easiest to administrate.

Hender likes it because the variables are reduced, but points out that the government has not given any scale of increase.

Whichever system the government chooses will bring yet more changes to company car policy. At the end of 2000, ARVAL PHH, which claims to be the market leader in fuel cards, launched MCS. This mileage capture system enables employees to punch in details of business and private mileage on the telephone, with the figures transferred to employer records. Last year, the company saw an 83% increase in the number of clients wanting to alter their system in order to use it.

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Philip Hammond