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- The tax is levied on the fuel. There is no tax on fuel cards.

- Fuel cards are an effective tool for controlling CO2 and business mileage costs.

- Fuel duty is due to increase by 2p per litre in October, having been postponed in the 2008 budget.

From 6th April 2008, HMRC will raise the nominal figure used for calculating benefit-in kind tax on fuel provided for personal motoring from £14,400 to £16,900. This is the first time the amount has been increased since its introduction in 2003. During this time, retail fuel prices have increased by 34%. Driver by driver assessments Private fuel benefit liability has to be calculated on a driver-by-driver basis as each decision depends on the driver's annual private mileage, their marginal rate of tax, their car's CO2 emissions, its actual fuel consumption, and, finally the price of fuel.

Fuel prices are due to rise by 2p per litre in October 2008 when duty on petrol and diesel increases. If drivers prefer to give up private fuel benefit, they can do so at any time during the tax year, only having to pay BIK tax for the portion of the year in which they received the benefit. To ensure the effective management of fuel consumption and to support CO2 reporting, it is essential that any driver opting out of the free fuel benefit continues to use a fuel card. Used in conjunction with the Arval Mileage Capture System, the fuel card is also the easiest and most cost effective way to manage business / private mileage splits and reimbursement.

Note that the percentage figure for calculating company car BIK, which also applies to fuel benefit, increases by 1% for vehicles registered after 6th April 2008. This follows the lowering of the start point of the CO2 - based BIK scale to 120g/km. Additionally, from the 5th April 2008, the basic rate of income tax will drop to 20% from 22%.

In 2008-09, therefore, the higher rate taxpayer in the above example would pay £210 more tax on their private fuel benefit (or £277 if the car is registered after 6th April). In 2007-08, a driver on the higher 40% income tax rate needed to cover at least 12,140 personal miles to make the fuel perk worthwhile (based on the Mondeo's official combined fuel consumption of 47mpg and assuming the driver paid an average cost of £1.03 per litre). The break-even point in the same car during the 2008-09 tax year will rise to 13,100 miles (assuming that the price of diesel fuel averages £1.12 per litre).

A new BIK band (10% for petrol and 13% for diesel) will be introduced on April 6th for cars emitting less than 120g/km of CO2. The band applies only to cars registered after 6th April 2008. A driver of such a vehicle will pay substantially less tax on the free fuel benefit than a driver of an identical vehicle registered before 6th April, despite the increase in the calculation figure to £16,900. The employer would also save proportionally on National Insurance contributions.

In 2007-08, a driver on the higher 40% income tax rate, driving a BMW 118d, needed to cover at least 13,906 personal miles to make the fuel benefit worthwhile (based on the BMW's official combined fuel consumption of 62.8 mpg and assuming the driver paid an average cost of £1.03 per litre). The break-even point in the same model registered during the 2008-09 tax year will fall to 10,839 miles (assuming that the price of diesel fuel averages £1.12 per litre).

About the Author:

Arval specialises in fuel cards and contract hire.

Article Source: ArticlesBase.com - Changes to ‘free Fuel’ Benefit Tax in the 2008-09 Tax Year: - Private Fuel Benefit Tax Will Rise From April 6th