Changes to company car tax rules in the Budget are likely to mean the end of many 'cash for cars' schemes as low mileage, perk drivers come back into the company car market. The move could hit dealerships and finance companies which have invested heavily in personal contract purchase and personal leasing schemes, offering no hassle, company car-style motoring to private buyers.

The taxation change coincides with a tightening up by the Inland Revenue (IR) on company sponsored Employee Car Ownership Schemes (ECOS) which can be viewed as a means of tax avoidance.

##Chapman(1)--right##The Inland Revenue has written to local tax inspectors asking them to refer all 'cash-for-cars' schemes to head office for approval. Companies with local agreements with their tax inspectors are likely to find they come under increased scrutiny from the central IR benefits office. Alison Chapman, tax partner at Deloitte & Touche automotive group (right), said the winners from the Budget changes - tax will be based on CO2 emissions, rather than business miles driven - were likely to be perk drivers.

“They cannot be worse off under the new system, even if they drive the most polluting vehicles,” she said. “The drivers likely to be the biggest losers will be the essential car users, driving more than 18,000 business miles a year. They will have to drive one of the very cleanest cars to stay tax neutral.”

Despite claiming environmental credentials for its pollution-based tax regime, the Government is worried about losing revenue from company car benefit-in-kind taxation which collects £1.71bn annually.