Tax on free fuel has been confirmed as moving to a CO2-based system, as revealed in the 2005 Pre-Budget Report.

The 2006 PBR statement said: “The company car fuel benefit charge, paid by employees who drive company cars and receive free fuel for private use, was reformed in 2003 to align it with the environmental principles of the company car tax system.

“The figure on which the charge is based is currently set at £14,400.”

The VAT fuel scale charge, which is a simplified scheme for taxing the private use of road fuel, will, from 1 May 2007, be based on a car’s carbon dioxide rating.

HM Revenue and Customs will publish details of the new regime “in good time to allow business to familiarise themselves with it and make any necessary computer system changes”.