Fleet News

Salary sacrifice changes labelled a ‘dangerous compromise’

Row of parked cars

The British Vehicle Rental and Leasing Association (BVRLA) and fleet representative body ACFO have welcomed changes to company car tax bands announced in the autumn statement.

But, the BVRLA believes that the partial exemption for company cars announced as part of the Government’s shake-up of the employee benefits tax regime is a ‘dangerous compromise’.

The Chancellor Philip Hammond has announced that there will be a new, more granulated range of company car tax bandings for ultra-low emission cars from April 2020.

The changes will see 15 new bandings introduced, of which 11 will be for ULEVS. From 2020, the appropriate percentages for zero emission cars will drop from 16% to 2%, while those for cars with CO2 emissions between 1g/km and 50g/km will vary between 2% and 14% depending on the number of zero-emission miles the vehicle can travel. The measure also increases appropriate percentages by 1 percentage point to a maximum value of 37% for cars with CO2 emissions of 90g/km and above.

“We are pleased that the government has recognised the importance of the company car market in supporting the take up of ultra-low emission vehicles,” said BVRLA Chief Executive, Gerry Keaney.

“These new bandings will create a much greater incentive for employers and employees to choose the cleanest electric and hybrid cars. However, these decisions are pragmatic, cost-conscious ones and we are concerned that they may be deferred until the incentives come into effect.

“The ULEV market could suffer in the meantime as company car tax costs rise significantly between now and 2019.”

ACFO also welcomed the greater clarity around company car benefit-in-kind tax for ultra-low emission vehicles and the introduction of thresholds that recognise zero-emission mileage.

However, ACFO chairman John Pryor said: “We await with interest as to the detail and how benefit-in-kind tax rate thresholds will align with cars’ zero-emission mileages.

“In announcing what the Government believes will be incentives to encourage fleets to operate ultra-low emission cars and employees to choose them from April 2020, it is disappointing that the government has given a confusing view as to exactly what tax rates will be for cars with CO2 emissions between 51g/km and 89g/km having announced a one percentage point increase for vehicles above 90g/km.

“Additionally, ACFO awaits the final details of the tax changes with interest as it is difficult to comprehend that in reality the already published benefit-in-kind tax rate for zero emission cars in 2019/20 of 16% will reduce to 2% and those with emissions between 1-50g/km will also significantly fall.”

The Government also announced changes to salary sacrifice, with cars that emit less than 75 g/km CO2 exempted from the changes.

However, those above that threshold will seeing the tax and employer National Insurance advantages of salary sacrifice or cash-or-car company car schemes removed from April 2017.

HMRC has said that it will not punish people for decisions they have already made or are about to make by confirming that it will protect any existing employer-provided car arrangements made before April 2017. This protection will last until April 2021.

Keaney said: “The Chancellor has clearly grasped the vital role that the company car sector plays in driving uptake of low emission vehicles.

“Nearly 3% of the company cars provided by BVRLA members emit less than 75g/km CO2. However, ULEVs are more expensive than the average car and are currently not suitable for every lifestyle or work environment.

“These tax changes could deter many employees from choosing a modern, safer, cleaner company-provided vehicle and see them opt for an older, dirtier and more dangerous alternative.

“The average company car is well under two-years-old and emits under 120g/km CO2. The average privately-owned car is around eight-years-old and emits more than 150g/km CO2.

“In addition, the government has set a very ambitious implementation date of April 2017, which gives providers and employers very little time to prepare their systems for these new rules.”

ACFO welcomed the exemption for ULEVs and the grandfathering of existing schemes through to April 2021. However, Pryor 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 National Insurance implications.”

The BVRLA was also disappointed to see that the Government missed its opportunity to reconsider the new VED regime being introduced next year.

“The new VED regime will hit car rental companies with an extra tax bill of more than £30m in 2017,” said Keaney. “This tax hike is unfair and will impact the industry’s ability to deliver flexible and affordable road transport to millions of customers.

“The changes will result in many companies running their fleets for longer and we expect this to result in nearly 30,000 fewer new car registrations next year.”

For detailed analysis of the autumn statement and what it means for fleets, see the December 8 edition of Fleet News.

 

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