Car salary sacrifice providers have declared the benefit is alive and well after attaining what one of them described as “absolute certainty” about how the tax rules will be applied.
The Government changed the tax structure of the schemes in April, leading to confusion over how some of the new regulations should be interpreted.
HMRC and HM Treasury have now provided confirmation that the application of the new rules should consider only the amount sacrificed for the car itself and not any associated services such as maintenance, which had been a contentious point.
However, there are implications for data capture according to one fleet sector observer.
Tusker and the British Vehicle Rental and Leasing Association (BVRLA) say the ‘car-only’ ruling means 98% of cars will still provide savings to drivers.
Tusker said employers will also make national insurance (NI) tax savings on 54% of the cars available through its scheme.
David Hosking, CEO of Tusker, told Fleet News: “Our customers and the benefits industry overall needed clarity around salary sacrifice cars. Government has always been clear when making changes to legislation that they want to protect car benefit schemes and reduce emissions.
“For us, this confirmation of the legislation provides absolute certainty that cars can continue as a cost-effective benefit of employment.”
Jay Parmar, BVRLA director of policy and membership, added: “From our point of view it is business as usual. The tax has changed but the vast majority of vehicles remain unaffected.”
He suggested that fleets should work with their leasing company to make sure they get the right vehicles on their fleet.
The clarification came following several months of discussions between the BVRLA, Tusker, its policy advisor EY (Ernst & Young) and both Government departments.
It means that under the new Optional Remuneration Arrangements (OpRA) legislation:
- The application of the new salary sacrifice rules should consider only the amount sacrificed for the car itself, and not for maintenance, tyres, roadside assistance etc.
- An employee who enters a car salary sacrifice agreement pays benefit-in-kind (BIK) tax on the greater of the taxable value of the vehicle or the salary being sacrificed for the car.
- Employers will also have to pay NI on the greater of the taxable value of the vehicle or the salary being sacrificed for the car.
- Ultra-low emission vehicles (those with emissions of 75g/km or less) are exempt from any tax changes. They will pay tax on the normal benefit charge.
- The same OpRA rules apply where an employee has a company car (without a salary sacrifice) but where the employee could have a cash allowance instead of the company car.
The clarification was also welcomed by Zenith. Its head of fleet consultancy, Claire Evans, added: “We are pleased to see this positive development that is likely to further enhance the attractiveness of salary sacrifice car schemes.
“There are still some final areas of detail to work through but we are confident this will produce benefits for our customers and reduce the costs for drivers, limiting or completely removing the impacts of OpRA on some of the most popular low cost, low CO2 cars.”
Caroline Sandall, director at ESE Consulting and deputy chair of fleet representative body ACFO, told delegates at ACFO’s autumn seminar that it was important for fleets to understand the impact of the changes. She said: “The overall impact across the whole of the salary sacrifice portfolio might be small, but that does depend on your fleet. If you operate a salary sacrifice scheme, it’s absolutely crucial that you model the impact for your profile of orders and your profile of drivers, because the impact might be different for you.”
Furthermore, Sandall reminded fleets that “optimised cash” (where drivers are offered cash instead of a car) is caught by the legislation and, she said, will “impact its effectiveness”.
She explained: “If you operate this type of scheme then you need to assess the impact on your fleet and your drivers, and in all likelihood it will impact in a way which makes it less (tax) efficient.”
In terms of employee car ownership (ECO) schemes, Sandall said there were still some which were operating really effectively, but they will be affected by the changes to salary sacrifice.
“It impacts what you can pay in a tax-efficient way,” she said. “However, you do have a little bit more time to remodel (your scheme) and see whether you can still make its design effective for you.
“There are alternatives that exist and that are being developed so it may well be that an ECO hybrid will emerge. If you’ve got an ECO scheme it’s absolutely crucial you get some advice.”
Confirmation that the rules should consider only the amount sacrificed for the car was welcomed by Sandall.
She said: “That’s great because it will lessen the impact. However, that is still quite a challenge as it may prove difficult for some providers to capture that data.
“In addition, does it lift the lid on the split of different costs ?”
Sandall revealed that discussions are still ongoing at HMRC as to whether this could be dealt with by a proportionality calculation.
“It is something you will need to keep an eye on if you’re operating a salary sacrifice scheme, because you’re going to need to know how you can operationalise this and how that impacts the way that you use the systems and the processes of your suppliers,” she added.
“You will need to know how you’re going to gather that data and how you’re going to interpret all of that for the poor driver, because, let’s face it, salary sacrifice is a fairly challenging message to get them to understand, particularly if they’ve come out of a traditional company car scheme.”