Fuel Tax

Fuel Tax

Private fuel

In April 2003 the fuel scale charge, previously based on engine size, was replaced by a system based on the level of CO2 emissions from the car in line with 2002’s changes to company car benefit in kind tax.

The same percentage is used for both calculations, increasing the importance of the CO2 emissions for drivers when choosing a new car and prompting fleets to re-assess how to provide fuel.

How will the tax be calculated?

To calculate the benefit charge on free fuel for private use, the percentage figure will be multiplied against a set figure for the year. For the year 2003/04 the set figure will be £14,400, though for future years this figure may rise. Remember that the CO2 percentage figure will also increase every year as the thresholds come down.

For a car that has CO2 emissions of 170g/km the percentage used to calculate the company car tax charge for 2003/04 is 18%. The fuel charge would therefore be 14,400 x 18% = £2,592 on which the driver pays tax at their marginal rate. In this example a 22% taxpayer would pay £570 a year, and a higher rate taxpayer £1,037.

Who will the winners and losers be?

As with company car benefit in kind tax, the winners will be drivers of low emission cars, whilst those driving higher emissions cars with low private mileage are likely to face a tax increase. Diesel drivers are also likely to benefit, despite the 3% supplement. Forthcoming Euro IV diesels will escape the supplement, attracting lower charges.

Would I pay less tax if using LPG?

A 1% discount is available to drivers of alternative fuel cars. For manufacturer bi-fuel vehicles an additional 1% is available for every 20g/km that the LPG CO2 emissions are below the minimum band for the year (155g/km for 2003/4).

What if free fuel ceases to be provided during the year?

Where free fuel ceases to be provided to a driver during the tax year, they need only to pay the proportion of the full annual tax charge related to the part of the year until free fuel stopped. The amount of Class 1A NICs due will be proportionally reduced to the same extent. However, if free fuel is re-instated later in the same tax year the full year’s charge will apply.

What if there is no approved CO2 emissions figure?

The same percentage figure should be used as to calculate the company car benefit. These are based on engine size and are as follows:

Engine size

Pre 1/1/98

Post 1/1/98

Up to 1,400cc

15%

15%

1,401 - 2,000cc

22%

25%

2,001cc and over

32%

35%

VAT on private fuel

Companies may be able to recover VAT on fuel purchased. However for each car for which private fuel is provided to the driver a VAT fuel scale charge applies.

From 1st May 2003 the annual VAT payable per car by companies where private fuel is supplied is as::

Fuel type

Engine size

VAT due

Diesel

2,000cc or less

£134.04

 

Over 2,000cc

£169.04

Petrol/other

1,400cc or less

£141.48
 

1,401 - 2,000cc

£178.72
 

Over 2,000cc

£263.61

Fuel duty

Fuel duty rates were frozen for 6 months in the April 2003 budget, with the situation to be reviewed in October.

At the same time various incentives to use cleaner versions of conventional fuels were announced.

Duty was frozen on ultra low sulphur petrol and diesel until 1st October 2003, when it will rise by 1.28p per litre. From 1st September 2004 duty on zero sulphur fuels will be 0.5p per litre below that on ultra low sulphur petrol and diesel.

From 1st January 2005 the duty on bioethanol, which is a blend of vegetable-based ethanol alcohol and petrol, will be 20p per litre below that on zero sulphur fuels.

Employer’s National Insurance contributions

From 6th April 2003 the rate of employer’s NI contributions on private fuel will increase from 11.8% to 12.8% of the benefit in kind. However, because private fuel benefit in kind is now based on emissions fleets have the opportunity to control NI costs by controlling CO2 emissions. For a 2.0 diesel car with CO2 output of 156g/km, the taxable benefit for 2003/4 would be 18% of £14,400, or £2,592. Class 1A NIC would be due of £331.78pa.

For 2002/3 the NIC would have been £336.30 - 11.8% of the £2,850 fuel scale charge. There is therefore a saving of £4.52 per annum or £678 for a 50 car fleet over 3 years, despite the increase in rate. Vehicles with high CO2 emissions will however generate increases in employer’s contributions. For example a 3.0 petrol car with CO2 output of 257g/km would generate an increase in NIC of £149.52, or £22,428 over 3 years for a 50 car fleet.

This should act as an incentive for employers to more closely manage fleet emissions through car policy, as national insurance costs on private fuel are also now controllable.