Employers need to be wary of falling into potential tax traps under controversial changes affecting company car schemes in the next few years, a tax expert has warned.
New legislation introduced from the 2017/2018 tax year means that where a benefit is provided via salary sacrifice or where there is a cash option (so-called optional remuneration arrangements), it will be chargeable to income tax and Class 1A Employer NICs.
The amount of tax will be based on whichever has the greatest taxable value, the benefit or the salary sacrifice/cash option.
However, these changes are covered by ‘grandfathering provisions’ so existing vehicles aren’t affected.
All benefits provided under OpRA starting on or after April 6 will be within the scope of the new law, but ‘grandfathering’ provisions mean any vehicles already ordered or in place remain under the old rules until the arrangement is varied, terminated or until April 5, 2021.
Dan Rees (pictured), associate director of Deloitte, told delegates at the Fleet200 Executive Club that problems could occur when a vehicle is replaced, for example following an accident, as fleets need to consider carefully whether it falls under the old or new rules.
For example, under variations to the rules, a car will not fall under the new arrangements if is replaced following accidental damage. However, this only applies if the replacement vehicle has the same terms and replacement date as the previous vehicle. If the fleet signs a different length of contract, or it has a different mileage profile, then OpRA arrangements can come into force.
Variations to the rules could also include amendments in connection to statutory sick pay, maternity pay, adoption pay, paternity pay or shared parental pay.
Rees said companies need to track employees under grandfathering provisions and those who are not, adding: “Employee communications will be key.”
He said companies needed to have the right policies and procedures in place to deal with all aspects of the new tax regime and reminded employers the burden of responsibility for correctly reporting benefits for tax purposes falls on them, and ultimately individual taxpayers.
Therefore, he said, it was important for every employer to ‘do its sums’ first to understand how they are affected.
> Rees's Powerpoint presentation is available via email. To receive a copy email Jeremy Bennett.