AS 2016: company cars and salary sacrifice curb
Opinion is divided as to the impact on company car provision following the Chancellor’s announcement in the Autumn Statement of a radical overhaul of the current salary sacrifice arrangements, with suggestions that there is likely to be a rush of purchases pushed through before the April 2017 start date for the new tax regime
25 Nov 2016
The Chancellor announced that the tax and employer national insurance contribution (NICs) advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, cycle to work and ultra low emission vehicles (ULEVs).
This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income.
However, Philip Hammond also said that arrangements in place before April 2017 will be protected until April 2018, while arrangements for cars, accommodation and school fees will be protected until April 2021.
Mark Groom, tax partner at Deloitte, said: ‘From April 2017 tax bills on many benefits in kind will increase, in some cases significantly.
‘The new rules will apply whenever a benefit is provided in conjunction with salary sacrifice.
‘It will come as a surprise to many that the new rules will also apply in cases where an employer offers employees a choice between a benefit and a cash alternative, if the benefit is not wanted.
‘Where the new rules apply, the tax due will be based on the amount of the salary sacrificed or the cash alternative, where this is higher than the normal taxable benefit value.’
Groom pointed out that many employees will be committing to salary sacrifice arrangements involving company cars between now and April 2017; for those the current rules will continue to apply until 2021.
But all new agreements entered into after April 2017 will be subject to the new rules.
Employees committing to salary sacrifice arrangements involving company cars between now and April 2017 will benefit from existing rules until 2021
‘The news will give employees who previously deferred company car and benefit decisions until the government confirmed its decision, an additional four months until 6 April 2017 to enter into any new arrangements,’ he said.
Matt Dyer, managing director at LeasePlan described the Chancellor’s decision as ‘both destructive and disappointing for the motoring industry’.
‘We must also remember that going forward, HMRC has been clear that it will make no distinction between salary sacrifice and the practice of offering a cash allowance in lieu of a company car, meaning this could affect up to 600,000 drivers,’ Dyer said.
Dyer said that while the ‘carve out’ for ULEVs was welcome, this is complicated by the fact that a new definition has been given for ‘ultra low’ which will not be clear until the Finance Bill is published on 5 December.
‘It is also astonishing that April 2017 has remained as the implementation date, giving providers and employers comparatively no time at all to ensure they can comply with the new rules effectively, leading to unwelcome complexity for very little gain,’ he said.
Colin Tourick, professor of automotive management at the University of Buckingham business school, was more sanguine saying that ‘all is by no means lost for the fleet industry and for those employees who have salary sacrifice cars or planned to have them’.
‘People already sacrificing salary will continue to enjoy the benefits for four years. We can expect a huge rush in salary sacrifice registrations between now and 5 April, when the new rules come into force.
‘And employees can continue to enjoy the benefits of salary sacrifice if they choose an ultra-low emission car, which is no great hardship as there is now a good selection of sub-75g/km cars on the market, with more to come soon.’
Tusker, which is the market leader in providing car benefit schemes, pointed out the significance of the Chancellor’s decision to exempt ULEVs from the changes to salary sacrifice rules. This exemption was added after the consultation, and means there will be no increases for drivers of low emission cars who would otherwise have faced an increase of up to £85 in monthly charges.
David Hosking, CEO of Tusker, said: ‘The Chancellor has listened to our evidence and protected ULEVs, endorsing them in the same way as cycle to work schemes and child care vouchers.
‘This positive step protects hard-working basic rate tax payers, who are the overwhelming beneficiaries of car benefit schemes.’
ACFO, the organisation which represents fleet managers, said it also welcomed the exemption for ULEVs and grandfathering of existing schemes through to April 2021, but said much of the detail of how the new approach would operate remains to be set out.
John Pryor, ACFO chairman, said: ‘Many companies and public sector organisations have introduced salary sacrifice arrangements and it is disappointing that the Autumn Statement lacks definitive details on the new tax rules and whether they will also apply to car allowances.
‘Businesses want stability and clarity and the Autumn Statement announcement just five weeks after the closure of the consultation period on the government’s proposed changes would appear to have given little time for the finite detail to be announced.
‘With so many questions remaining unanswered with the initial announcement, ACFO hopes that detailed information will be published as soon as possible so that all employers and employees can plan their future strategies and make decisions in confidence and in the full knowledge of the tax and NICs implications.’