When the Government announced its intention to reform the tax treatment of salary sacrifice schemes in the 2016 Autumn Statement, many feared that this would have a drastic impact on both company car drivers and the UK car industry.
However, as David Hosking, CEO of Tusker explains, from his conversations with HMRC and HM Treasury, it has been made clear that the Government wanted to do two things; firstly, to lower emissions of cars in the UK overall and secondly, protect the UK car industry.
But, there still remains uncertainty around how the legislation should be applied. Hosking explains: “There are two main parts to the legislation. One has been well publicised but the second, I believe, has been overlooked by many in the industry. Firstly, in last year’s Autumn statement, Ultra-Low Emission Vehicles (those with emissions of 75g/km of CO2 or less) were made exempt from any tax changes.
“Then, in the subsequent Finance Act, published on March 20th 2017, it was made clear that the comparison of the benefit in kind was to the amount sacrificed for the car itself (i.e. excluding, as was the case under the previous system, maintenance, tyres, roadside assistance, and the like).
This means that the environmentally aligned benefit in kind rules will continue to apply for 98% of vehicles while the treatment of employers’ national insurance remains unchanged on more than half of all vehicles available.
HMRC and HM Treasury have confirmed 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 – FleetNews reports.
Hosking explains that these changes support the Government’s commitment to providing a fairer tax structure while not undermining its wider environmental policy. Under the new rules, the finance rental for the car and all other costs should be separated. This confirmation is also important for employees and employers ensuring that car salary sacrifice remains a valuable part of the employee’s benefits package.
Optional remuneration arrangements rules also known as OpRA, could become challenging for HR, if employees receive the same benefits but are taxed differently because of the new rules.
FleetNews reports that the main points to consider, under the new Optional Remuneration Arrangements (OpRA) legislation are the following:
- 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.
Tusker worked alongside tax advisors, HMRC and HM Treasury, and have written confirmation that their interpretation of the legislation is correct.