There was lively debate on the issue in the final session of the International Auto Finance Network (IAFN) conference this week. Jay Parmar, BVRLA’s director of policy and membership, explained that a consultation launched over the summer had been aimed at addressing what HMRC views as a growing abuse of salary sacrifice and flexible benefits such as a cash alternative in lieu of a company car.
“However, the real target are instances where companies have a salary sacrifice scheme and the employee claims a drone, for example, or a case of wine. Those are clearly abuse. In contrast, company car tax is progressive and is laid out well in advance, so workers and employers know exactly where they stand,” Parmar said.
HMRC’s current proposals suggest that the higher of the taxable benefit and the salary sacrifice/cash allowance sum is used as the taxable value. This clearly affects lower CO2 emitting cars the most, as there is the greatest difference between the taxable BIK and the salary sacrifice/allowance.
The tax authority is arguing that salary sacrifice schemes are frequently used as a means of tax avoidance by the well-off, a view that was challenged strongly by David Hosking, CEO of Tuskerdirect. He pointed out that of the cars his company has on the market, 65% are driven by public sector employees of whom 88% are basic rate taxpayers.
Parmar and Hosking told delegates that HMRC had not shown it had viewed sufficient data on which to make its decisions, while Hosking warned that if the plans come into effect as intended in April 2017, the impact could be dramatic. While a quarter of the Tuskerdirect fleet would not be affected, 85% or some 15,000 drivers could see a hit to their wallet, particularly if they have chosen a more environmentally-friendly car.
Tuskerdirect calculations suggests that a basic rate taxpayer who has opted for a ultra low emission car could find themselves paying between £36 per month extra tax up to £85 per month more tax in the case of BMW i3 drivers.
“You could argue that this new policy only hits the 15% of our salary sacrifice drivers who have chosen ultra low emission vehicles. The whole life costs of these vehicles is expensive, because of the cost of the technology, so it made sense for the government to incentivise uptake,” Hosking said.
“Official figures show 1.5% of the total of vehicles in use are ultra low emission, whereas in salary sacrifice schemes the figures is 6% and growing. Effectively this change in regulations could undo all the good work,” he added.
Speaking at the IAFN conference, Parmar, Hosking and Adrian Dally, the FLA’s head of motor finance, also hit out at the complexity of the new proposals, which runs counter to HMRC’s aim of simplifying the tax system. For an employee to work out the value of the cash alternative and whether they should opt to pay tax on that or the car is likely to be challenging, while there was scepticism over how long any “grandfathering” arrangements will be in place.
For these reasons, Dally declared himself “cautiously optimistic” that the Chancellor will announce an opt out arrangement for company cars in salary sacrifice schemes, although he cautioned that Hammond is likely to announce he will get rid of the employer National Insurance savings involved. For his part, Parmar warned it was “too close to call”.