Fleet News

Salary sacrifice tax hike ‘won’t affect UK business’

Australian tax proposals that make salary sacrifice-type car schemes inefficient will not dent the UK aspirations of leasing companies from the Australasian country.

Salary-packaging schemes are hugely popular in Australia, but the tax proposals have left the country’s leasing industry in turmoil.

SG Fleet launched its salary sacrifice scheme in its home Australian market in the 1990s and expanded into the UK in 2007.

Late last year the company, which has around 2,500 vehicles on its books in this country, launched its NovaLease salary sacrifice product in the UK saying it would help underpin growth.

David Fernandes, managing director of SG Fleet in the UK, said: “The proposed changes to fringe benefits tax (FBT) in Australia will have no impact on SG Fleet’s business plans in the UK.

“We have long pursued a diversification strategy of both our products and geography, all with the stated core objective of providing professional fleet management services to our customers. Funding for both our UK operations and for our UK book remains strong.”

The Australian government says its proposals will make the tax system fairer by ensuring tax breaks for cars paid by employers are targeted at business use rather than personal use. It described the benefit as “no longer justified or appropriate”.

Under the proposed reforms, they will be removed for both salary-sacrificed and employer-provided cars.

It is proposed that the tax change will be introduced from April 1, 2014.

Fernandes stressed that the UK tax system is different from that in Australia. “Benefit-in-kind is a tax on employees based on CO2 emissions whereas in Australia, FBT is a tax on business based on the non-business usage of vehicles,” he said.

“The proposals in Australia will have no effect on the viability of salary sacrifice products in the UK.”

Earlier this year, the founders of Visper Asset Finance and Australian company McMillan Shakespeare launched Maxxia UK as a 50:50 joint venture promising a new approach to company car and commercial vehicle funding with salary sacrifice among its product portfolio.

Roger Skinner, Maxxia UK chief executive, also believes that the market for salary sacrifice in the UK will continue to grow.

He said: “We believe salary sacrifice is still very much an option for UK companies and their employees.”
Experts believe there is little appetite to outlaw salary sacrifice schemes in the UK – a move that was made by the Irish Government some years ago.

Alastair Kendrick, tax director at chartered accountants MacIntyre Hudson, said: “The question is whether the Government has the appetite to take action. I don’t see that it does. Tax avoidance schemes are being targeted, but salary sacrifice is not in that league.”

Dan Rees, senior manager, Deloitte Car Consulting, added: “In the past, HMRC has legislated against salary sacrifice schemes which take advantage of tax exemptions.

“Cars do not attract an exemption and are taxed according to the current rules, which do not rely on business mileage levels.

“HMRC in our experience has never raised any objections to salary sacrifice for cars schemes, as long as the sacrifice is effective (supported by documentation) and the cars provided are taxed appropriately as a company car with the appropriate Class 1A NI paid by the employer. 

“Therefore, we believe that a standard salary sacrifice for cars scheme is generally viewed as responsible tax planning.”

HMRC keeps a permanent watch for overly aggressive salary sacrifice schemes and there are precedents for rules being tightened notably in relation to computers provided by employers for home use, canteen expenses and tax relief on childcare vouchers.

Tax expert Jeff Whitcombe, a director of business car consultancy BCF Wessex, urged employers introducing schemes to obtain HMRC approval.

Click here for fleet funding best practice and procurement insight

Leave a comment for your chance to win £20 of John Lewis vouchers.

Every issue of Fleet News the editor picks his favourite comment from the past two weeks – get involved for your chance to appear in print and win!

Login to comment


No comments have been made yet.

Compare costs of your company cars

Looking to acquire new vehicles? Check how much they'll cost to run with our Car Running Cost calculator.

What is your BIK car tax liability?

The Fleet News car tax calculator lets you work out tax costs for both employer and employee