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27 October 2004

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Last year the Inland Revenue admitted to the issue of around 280,000 incorrect tax codes to taxpayers who had company cars. Surely it isn't going to happen again! I know the pantomime season is over but I can still hear cries of, "Oh, yes it is!" If you have a company a car and, especially, if your employer provides fuel for that car, you should check very closely any car benefit or fuel benefit figures included in your code number for the year 2003/04.

The calculation of car and fuel benefits was a relatively simple matter before April 2002. However, in Gordon Brown's constant (but woefully ineffective) drive towards simplification of the UK tax system, a new car benefit system was introduced last April based on a percentage of the price of the car, graduated according to the level of the car's carbon dioxide emissions. This change led to last year's difficulties.

The rules for the calculation of fuel benefits change with effect from 6 April 2003 and it would appear that the Inland Revenue computer has not yet got to grips with the new regime. In previous years, the fuel benefit was determined quite simply from a table, the only variables being the engine size and the type of fuel. There were only three fuel benefit figures for petrol or diesel engine cars, 2,240, 2,850 or 4,200.

In the new "simplified" system the Chancellor has now linked the fuel benefit figure (in the same way as the car benefit figure) to a percentage determined by the carbon dioxide emissions. That percentage (the same as for the car benefit) is then applied to a set figure (14,400 for 2003/04).

The percentage can vary between 15 (for cars with emission levels up to 155 grams per kilometre) and 35 (for cars with levels of 255 g/km or more.) These are the levels set for 2003/04 and are reduced each year. The emission level for your car can be established as follows:

  • For cars first registered in the UK from 1 March 2001, the approved CO2 emissions figure will be shown on the new Vehicle Registration document (V5).

  • For cars first registered 1 January 1998 to 28 February 2001, the manufacturer should provide this information if asked to. Under an agreement with the Inland Revenue, the Society of Motor Manufacturers and Traders (SMMT) is providing a CO2 enquiry service free of charge on the Internet - at www.smmt.co.uk - for cars first registered from January 1998 to February 2001.

Once the emission level for your particular car has been established, the appropriate percentage figure can be obtained from Inland Revenue Booklet 480, which is available on their web site.

To save you a lot of time and trouble, visit our web site at www.ietaxguard.co.uk  where you will find a calculator for your car and fuel benefit figures. If the figures included in your code number are incorrect, contact the Inland Revenue as soon as possible to ensure that the correct tax is deducted from your earnings in April.

February 2003

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