IT appears that the government hasn’t quite thought through its proposals for changes to salary sacrifice – an area where HMRC feels there is both tax and NI leakage.
ACFO also points out
- Corporate salary sacrifice arrangement were often better value than a private arrangement, particularly for low income employees, providing new car certainty, reduced running costs and better fuel consumption
- More employees driving their own cars on business – the so-called ‘grey fleet’ – which is acknowledged to comprise vehicles that are older than company cars and therefore have higher emissions, are less fuel efficient and are not equipped with the latest safety features.
- More private cars means an increase in employees claiming tax relief against Approved Mileage Allowance Payments which would reduce any perceived increase in tax revenues as part of the proposed changes.
- An increase in salary sacrifice administrations costs for employers and HMRC
- An increase in “inequity” across organisations and potentially within employers where there could be differing allowance values across employee groups.
Proposals from HM Revenue & Customs (HMRC) in its ‘Consultation on Salary Sacrifice for the Provision of Benefits-in-Kind’ suggest that the higher of the company car taxable benefit and the salary sacrifice/cash allowance sum will be used as the taxable value.
But such cash-generating changes to salary sacrifice car schemes are under fire from ACFO, the UK’s premier fleet decision-makers’ organisation, for numerous “unintended consequences” notably hitting its own calls for fleets to operate low-emission vehicles.
ACFO believes the changes will hit drivers of low emission cars the most, because they have the greater difference between their taxable benefit-in-kind and their salary sacrifice amount or car allowance – potentially steering them away from the very low emission cars the government wants to encourage.
Clean air would get a double blow though, reckons ACFO, because if companies moved away from offering a salary sacrifice car scheme, employees could turn to more polluting used cars.
“Whilst it is probable that many employers would continue with some form of company car arrangement, if those lower emitting vehicles are no longer as financially attractive, drivers will choose higher emitting, and potentially more diesel, vehicles,” the fleet organisation warned.
“Employees would not be able to afford new cars, or may not even be able to obtain credit. That would impact on benefit-in-kind tax revenues and other revenues triggered by a vehicle such as VAT and Vehicle Excise Duty.”
ACFO deputy chairman Caroline Sandall added: “The existing company car benefit-in-kind tax regime provides high levels of certainty over the cost of future taxation for both employees and employers.
“Introducing changes of this scale and nature leads to uncertainty and will make both employees and employers question the viability of car schemes, leading to fewer schemes, fewer cars and quite possibly less tax revenue.”
Ms Sandall concluded: “When cars are provided through a salary sacrifice arrangement they remain subject to tax, which is unlike other employee benefits.
“We believe these ‘catch all’ salary sacrifice proposals are ill-conceived when cars are offered through such an arrangement.”