THE new 2002 carbon dioxide-based company car tax system will be destroyed within weeks if the Government backs a bid to abolish recommended retail prices for new cars, according to an eleventh hour warning from the Inland Revenue. The warning came on Monday - less than a week after details of the emissions-based tax were unveiled in the Budget.

It acts as a shot across the bows of the Department of Trade and Industry, which is expected to publish the Competition Commission's New Cars Inquiry report shortly, along with its recommendations. New car list prices are expected to be attacked in the report as being too high compared with the rest of Europe, with part of the blame being attributed to fleet discounts. However, if the Government forces the abolition of list prices, it would destroy the foundation stone on which company car tax calculations are based.

Fleets, which can now plan for the future to acquire the most tax- efficient vehicles after waiting a year for details on the tax, would once again be thrown into confusion until a new battle plan for company car tax could be created. Sara Woollard, Inland Revenue personal tax division policy adviser, told the Association of Car Fleet Operators' post-Budget roadshow in London: 'We want to try to use list price as the starting point for the tax in future. If list prices are abolished, then we will have to find a new starting point for calculating the tax. We have two years and it could end up being the actual cost of cars, or their open market value.'