Fleet News

Government accused of U-turn on salary sacrifice cars

Row of parked cars

One of the country’s leading providers of cars via salary sacrifice maintains it remains a “unique and valuable” benefit for employees after the Government changed how schemes are taxed.

The Chancellor Philip Hammond confirmed in the recently published Finance Bill that the Government will tax the ‘package’ of benefits received by salary sacrifice drivers with their car.

Tusker says the impact on pricing will be marginal, but accused the Government of committing a U-turn on the policy.

Insurance, maintenance, tyres and breakdown cover, the fleet industry was told, would not be taxed when a new tax regime for so-called Optional Remuneration Arrangements (OpRA) was introduced from April 2017.

But this summer, HMRC claimed their omission was an “oversight” and they should have always been included in the original legislation (fleetnews.co.uk, August 29).

Tax officials told Fleet News the error had not been identified during the initial consultation on the OpRA policy proposals and it was now simply correcting a “mistake”, with the changes coming into force for all cars, including existing contracts, from April 2019.

Tusker CEO Paul Gilshan said: “HMRC had confirmed in writing and during face-to-face meetings that the original Finance Bill allowed the separation of costs connected with cars.

“Following our meetings, guidance notes were updated to reflect this. So, the recent Budget update is definitely a U-turn by Government.”

Professional services firm EY worked with Tusker and had face-to-face meetings with HMRC and Treasury officials when the original policy was being drawn up.

It also produced a white paper in September 2017 on how OpRA legislation should be applied to the provision of a salary sacrifice company car.

Chris Sanger, EY head of tax policy, said the Government’s re-examination of the rules in the summer came as a surprise, given the extensive discussions regarding “both the scope of the rules and the alignment with policy intent”.

“Clearly, the Government has changed its mind and concluded that the rules now need changing, despite concluding the opposite previously,” he continued. 

“What is surprising, and disappointing, is that there is no grandfathering of the rules for those taxpayers who have committed to multi-year contracts on the strength of the original interpretation that HMRC publicly confirmed, and will now face higher tax charges.” 

The leasing industry, which has seen the funding device grow in popularity over the past few years, had been lobbying Government to introduce a transitional arrangement or to introduce grandfathering (exemption from a new law) for those drivers that took out salary sacrifice deals from April 2017.

The Finance Bill said: “The changes ensure that when a taxable car or van is provided through OpRA, the amount foregone includes costs connected with the car or van which are regarded as part of the benefit-in-kind under normal rules. In addition, the changes adjust the value of any capital contribution towards a taxable car when the car is made available for only part of the year.”

It continued: “This provides that the total amount foregone, which is to be taken into account in calculating the amount reportable for tax and NIC purposes, includes both the amount foregone with respect to being provided with the car and the amount foregone with respect to the costs connected with the car (such as insurance), which are regarded as part of the benefit-in-kind under normal rules.

“The cost of a driver and fuel are not to be included as these are chargeable under separate provisions.”

Some industry estimates suggest that for those drivers affected, it could cost them an additional £100-£240 in tax per year. Employers will also end up paying more National Insurance.

However, Gilshan said: “Our modelling shows that 85% of recent orders would see no increase at all. The remaining 15% would see a small increase in monthly cost.

“We know there will still be significant savings through salary sacrifice thanks to our commitment to reducing costs and the fantastic discounts from manufacturers we are able to offer our drivers.”

The fleet industry fought hard to protect the benefit when the OpRA rules were first outlined and was successful in winning an exemption for ultra-low emission vehicles (ULEVs).

Gilshan concluded: “It remains a unique and valuable benefit for employees ensuring they are driving safer, cleaner cars.”

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  • Verity Deseur - 19/11/2018 12:42

    Salary Sacrifice has for too long been for the (taxable) benefit of a selected few pedalled by opportunistic leasing companies and consequently is deservedly being culled. The taxation benefits should apply to all or none.

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