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Fleet Hire urges Chancellor not to tamper with salary sacrifice for cars

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Fleet Hire has urged Chancellor George Osborne not to tamper with salary sacrifice cars schemes or risk losing substantial amounts of revenue for the Exchequer.

Osborne announced in his 2016 Budget Statement that the Government was concerned about the growth of salary sacrifice schemes and their impact on tax revenues.

Clearance requests for salary sacrifice arrangements from employers to HMRC had increased by more than 30% since 2010.

The Government was therefore considering limiting the range of benefits that attracted income tax and NICs advantages when they were provided as part of salary sacrifice schemes, the Chancellor said.

However,  the Government’s intention was that pension saving, childcare and health-related benefits such as Cycle to Work, would continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements, although the Chancellor made no mention of salary sacrifice for cars.

Graham Hale,chief executive at the contract hire, fleet management and salary sacrifice provider, said: “The Chancellor should resist the urge to tamper with salary sacrifice car schemes as they are ‘tax positive’ to the Exchequer, and they open up wider car ownership to lower paid workers who would not otherwise be able to afford it.

"They also promote the uptake of cleaner, ‘green’ cars with low carbon emissions.

“While salary sacrifice car schemes are undoubtedly tax beneficial to employees, HM Treasury achieves a net tax positive since, through the company car status provision, the employee pays benefit-in-kind tax linked to the P11D price and CO2 emissions rating of the car, while the employer pays Class IA NICs on provision of a company car to the employee.

“Furthermore, 50% of the VAT on the finance lease rental is irrecoverable by the lessee since the car is used mainly for domestic rather than wholly business use, plus the insurance element of the sacrifice itself attracts Insurance Premium Tax.

“Finally, the lease provider, as owner of the car, pays over VAT when the car is returned at the end of the salary sacrifice period and sold.

"Taken together collectively, salary sacrifice cars are net tax positive to the Exchequer and the Chancellor risks losing that revenue stream if he tampers with their provision.”

At the same time, salary sacrifice car schemes were instrumental in lowering carbon emissions and promoting greener motoring, said Hale.

Fleet Hire, which founded its Car Salary Exchange division four years ago and has over 100 salary sacrifice car schemes in both private and public sectors, has seen carbon emissions fall to an all-time low for all new cars provided.

“Emissions on our own salary sacrifice fleet have fallen to an average of 109g/km," said Hale.

"This is of no surprise because pricing is directly linked to the CO2 emissions rating of the car, hence employees are encouraged to drive the lowest CO2-emitting cars available to benefit from the lowest possible pricing.

“This actively supports and helps the Government to achieve its own CO2 emissions reduction targets as part of a world-wide greener objective."


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  • Carcoat Damphands - 23/03/2016 11:42

    The reason why businesses can claim back 50% of the finance VAT is because it was considered that 50% of journeys in company cars are private miles. Although BVRLA are campaigning for this to be looked at by the government. If you're saying a Salary Sacrifice car is "mainly" for private use, then surely the government could make all of the finance lease VAT irrecoverable.

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