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HMRC takes aim at thousands more company car drivers

Row of parked cars

Cash for car schemes will be considered as part of the consultation on the future of salary sacrifice arrangements, HM Revenue and Customs (HMRC) has confirmed to Fleet News.

The UK tax authority had already come under fire for including cars obtained through salary sacrifice schemes in the consultation on potential tax changes.

However, it now appears that thousands more company car drivers could see their tax arrangements overhauled as HMRC casts its net much wider than first thought.  

An HMRC spokesman told Fleet News: “We are not looking just at traditional salary sacrifice, we are looking at when an employee can get a cash sum. 

“The most common is a car allowance where they can either get a car or a cash sum, which they can use on their own personal car or anything else. In this case, there will still be a direct convertibility to cash, and so the amount we will tax on the person who takes the car is the higher of the taxable values. This is based on CO2 emissions or the car allowance that the employer considers to be the same value – the car allowance amount.”

Fleet representative body ACFO believes the impact on the company car market would be significant. “This has the potential to fundamentally change the landscape of fleet provision,” said Caroline Sandall, deputy chairman of ACFO. “It is vital fleets assess the impact for their organisation.” 

Both ACFO and the British Vehicle Rental and Leasing Association (BVRLA) have met with HMRC to discuss the fleet industry’s concerns. 

Gerry Keaney, chief executive of the BVRLA, said: “We are talking to HMRC to ensure they are aware of the potentially harmful consequences. These flexible benefit schemes provide a valuable way of extending the advantages of a traditional company car scheme to reward and retain staff.” 

Deloitte claims as many as 500,000 company car drivers could be hit with the changes – around 50% of the 970,000 employees identified by HMRC as paying benefit-in-kind (BIK) tax on a car. But exact numbers are hard to establish – the BVRLA estimates between 80,000 to 100,000 company cars are sourced through traditional salary sacrifice schemes, while FN50 figures from the UK’s top 50 leasing companies suggest a salary sacrifice fleet closer to 60,000 units.

Deloitte in turn estimates that up to half of the remaining company car drivers – some 360,000-450,000 employees – have a cash allowance option.

Alastair Kendrick, tax director at MacIntyre Hudson, said: “It’s hard to put a size on the driver population, but there will be a significant number of employees who are not essential car users who are offered a cash or car alternative.”

The impact will be felt most by those cash allowance drivers who opted for an ultra-low emission vehicle (ULEV) to keep their BIK tax bill down. HMRC says it will tax whichever is the greater amount; the benefit-in-kind value of the car or the cash allowance sum offered.

It means if the cash sum offered is greater than the taxable value of the benefit, the employee would have their company car taxed as earnings rather than a benefit in kind.    

For example, a driver who was offered a cash sum of £5,400 (£450 per month), but decided to opt instead for a Volkswagen Golf, with emissions of 109g/km, would have to stump up an addition £86 if a 20% taxpayer, or £173 if in the 40% bracket (see panel).  The employer would also pay Class 1A National Insurance (NI) on the higher amount, equating to an additional £59 in tax.

But if they had opted for a plug-in hybrid Golf, with emissions of 39g/km, the employee’s tax bill would rise by £579 for a 20% taxpayer or £1,159 if they are in the 40% bracket. The employer would also have to pay an additional £400. 

The changes would add a high degree of complexity to a company car tax system which is fairly well understood. Coupled with the proposed removal of tax breaks for traditional car salary sacrifice schemes, it would also contradict the Government’s desire to drive the uptake of ULEVs. It wants 5% of all new car sales to be ULEVs by 2020, rising to 100% by 2040.

Last year, salary sacrifice for cars had more than doubled the growth in the uptake of ULEVs, according to the BVRLA, with 5.6% share of new business for salary sacrifice cars versus 2.78% for the overall market.

John Pryor, ACFO chairman, said: “We know that salary sacrifice schemes have been very successful in introducing low CO2 cars to employees – whether they previously had entitlement to a car or cash allowance – and that when no scheme is available, the private car typically has higher emissions of CO2.”

Salary sacrifice provider Tusker, which is due to meet HMRC in the next few days, is in no doubt that HMRC’s plans would harm the uptake of ULEVs. It also argues that unlike other salary sacrifice schemes which offer goods and services, such as mobile phones cars generate further revenues for HMRC throughout their lifecycle.

David Hosking, Tusker’s chief executive, said: “We welcome the Government’s consultation to dispel the myth that our car benefit schemes are the same as these other salary sacrifice options.”

Tusker is making its customers and prospective customers aware of the consultation, while fleet managers are being urged to approach driver communications with caution. 

Sandall said: “While it is always important to keep drivers updated, this is a consultation document only and it remains possible for a number of changes to be made to the proposal. 

“Added to that, we will not know the detail of the changes to fully scope the impact until this is formally announced, so fleets should carefully consider any impact and corresponding actions that are taken now to manage their driver population.”

The fleet industry has until October 19 to respond to consultation, with new rules expected to be announced in the Autumn Statement in November and adopted from April 2017.

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  • Mark Humphreys - 26/09/2016 11:00

    If HMRC want 100% ULEV sales by 2040, then why make the preliminary changes along that direction financially punitive to anyone deciding to become more environmentally friendly? Talk about shooting yourself in the foot...Let's keep the sludge-burning 'tractors' running, I say...Mother Nature is big enough to look after herself! On a slightly different point, surely the elected politicians and decision-makers work for the populace (it used to be called democracy)? We are paying them to work for the good of the people and the country - whilst I agree that certain policies have their merits and may even benefit the majority of people, the people should always have the final say, or at least have the option to publicly debate these changes before they are unilaterally enforced...who's policing the policemen?

  • John Henry - 08/11/2016 12:40

    Having read the article based on the easy earn money rules of the HMRC, I must admit that after 39 years of being involved in the Fleet Industry, it does not come as a surprise that they can still find yet another means to increase the already extortionate cost of company car drivers. Any Company car driver who is doing 25k + miles a year, really has no benefit as by the time they get home they really don't want to use the vehicle for personal use, certainly they don't have a 50% benefit as required by the HMRC. Secondly, the tax is based on the MRRP and not the actual selling price which totally distorts the taxable benefit so the driver is actually paying tax on an amount has not been paid therefore should not be taxed. It is all very well for Civil Servants sitting behind a desk and not having any insight into what it is like to be driving all the hours you work, making up Jack a Nory systems which only penalise the HARD WORKING driver and their families. But all is not lost as when the Company Car has been taxed out of business and the jobs are lost, HMRC will be able to tax the unemployment benefit for a vast amount ex company car drivers.

  • bob the engineer - 30/12/2016 13:09

    I am struggling a bit to get my head around this. So an employee has a company car withdrawn but is given a general salary increase of say £400 a month instead and is expected to get themselves to customers by some means. So if that employees goes out and spends their wages buying a car on a loan and uses it to get to customers -the HMRC are going to say, what is the CO2 of your personal car and if the equivalent company car tax for it would be more they are going to charge you that instead? how will they decide how much of your pay is 'car allowance' if its not called that? won't this rope in almost the entire population that spend any of their salary on running a personal car if they use it for a work trip even just ONCE? its incalculable! I can see its panic that they will lose revenue as people are taxed out of traditional company cars back to cash taking, but instead of playing cat and mouse, why not just set fair reasonable and stable rates and encourage company car ownership. They will get reliable income from it then.

    • bristol_bri - 03/01/2017 14:19

      Hi Bob, the rules only apply if you have the option of taking cash or car and you choose the company car. The tax you pay will be the higher taxable value of the car or the cash option. If you choose the cash, you will pay income tax in the usual way on the cash amount - the taxable value of any car (company or personal) is not considered.

      • bob the engineer - 04/01/2017 18:15

        Thank you Bristol Bri, that makes sense. So in my case there is no cash option offered so it won't affect me as there is nothing to compare with then.

  • Lee Avery - 31/01/2017 10:53

    What will happen to the UK motor industry when no more cars are purchased new by car lease companies? Surely, eventually, employees will receive higher salaries and will purchase their own cars with no tax going to the government? Shooting themselves in the foot surely?

    • Pete - 24/02/2017 11:37

      If you buy a car personally from your salary (that had income tax and NICs deducted at source) HMRC already have the tax...

  • Danny - 27/02/2017 17:04

    Ridiculous decision to penalise the principal of taking an low emission Company Car which was the basis of all car taxation policy. I might as well drive a gas guzzler now as the penalty equals a higher rate of income tax. Also harm the sales of new cars in this country as a good proportion were fleet purchases which might not be good for manufacturers.

  • Chris Hayward - 06/03/2017 10:04

    Just buying a new Landrover Discovery 5, which has far less emissions than my current discovery 4, I was expecting a small fall in road tax, oh no! HMRC has put up the road tax from £455 to £800! This £800 applies to any vehicle sold in the UK after 1st April costing over £40K. Beware! Our government are hypocrites

  • Bill - 13/03/2017 11:30

    I find this whole little scam by HMRC very odd. Effectively, they will now be taxing employees for benefits that they have chosen not to take. Where does it end? "Oh, your company offers you private medical insurance, but you've chosen to it out? Well, that's a taxable benefit. You were only seeking to avoid tax." I can't really ever see this coming in, as it is surely illegal.

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