Clause 34 - Car fuel: calculation of cash equivalent of benefit
Finance Bill
4:30 pm
Mr Paul Boateng (Financial Secretary, HM Treasury; Brent South, Labour)
The clause introduces a new system for calculating the taxable benefit of free fuel provided by employers for private use by employees who drive company cars. It will help the environment, be easy for employers to implement and easy for employees to understand.
If an employer provides free fuel for private use by an employee who drives a company car, income tax, which is payable by the employee, and class 1A national insurance contributions, payable by the employer, are due. Tax and contributions are calculated using flat rate charges based on the engine size of the car and whether it runs on petrol or diesel.
A consultation document issued on 6 December 2001 set out three options for a new structure of the fuel charge from April 2003. All three options linked the new charge, in some way, to the CO2 emissions of the car. The responses to the consultation clearly showed that the preferred option was for the fuel scale charge to be determined by reference to the same percentage rate used to determine car benefit tax. It was recognised that such a system would be easy for employers to implement and for employees to understand, as opposed to one approach used for car benefit tax—after that part of the vehicle excise duty—and another one for the new charge.
Under the new company car tax system, introduced in April this year, the value of the car benefit is calculated as a percentage of the list price of the car. The appropriate percentage is based on the car's level of CO2 emissions. Employers will use that same percentage figure charge to work out the free fuel benefit charge when the new fuel scale charge comes into effect in April 2003. They will simply multiply it by a set amount--£4,400 in 2003-04--