ACFO warns of “unintended consequences” of proposed salary sacrifice changes
The Association of Car Fleet Operators (ACFO) has warned the government of serious “unintended consequences” of proposed car salary sacrifice scheme changes, notably impacting the drive towards low-emission vehicles.
Proposals from HM Revenue & Customs (HMRC) in its ‘Consultation on Salary Sacrifice for the Provision of BiK’ suggest that the higher of the company car taxable benefit and the salary sacrifice/cash allowance sum will be used as the taxable value.
The government is pushing for change because it believes that the growth of salary sacrifice, including for cars, is at an increasing cost to the Exchequer due to the loss of tax and National Insurance contributions.
But the proposed changes, according to ACFO, will hit drivers of low emission cars the most, because they have the greater difference between their taxable BiK and their salary sacrifice amount or car allowance.
ACFO believes that the proposals will actually steer employees opting for a salary sacrifice car arrangement away from the very cars that the government is striving to drive them towards in a bid to improve air quality.
ACFO deputy chairman, Caroline Sandall, commented: “The existing company car BiK tax regime provides high levels of certainty over the cost of future taxation for both employees and employers. Introducing changes of this scale and nature leads to uncertainty and will make both employees and employers question the viability of car schemes, leading to fewer schemes, fewer cars and quite possibly less tax revenue.”
As a result of fewer new vehicle purchases if companies moved away from offering a salary sacrifice car scheme, ACFO has warned the government that employees could turn to used cars, impacting BiK tax revenues and other revenues triggered by a vehicle such as VAT and Vehicle Excise Duty.
The greater the use of private vehicles, the greater the likelihood of employees claiming tax relief against Approved Mileage Allowance Payments. Typically, employers offering cash or car will only reimburse via lower Advisory Fuel Rates even if the employee is using a private car. Employees would therefore seek to claim tax relief on business miles, which could reduce any perceived increase in tax revenues as part of the proposed changes.
ACFO believes the proposed changes could also trigger an increase in salary sacrifice administrations costs for employers and HMRC.
The government has suggested that any changes could be introduced in April 2017, but Sandall argues that date is too soon; “Salary sacrifice offers no early termination option so employees cannot hand back their car early and even if this were to be allowed, there would be potential early termination costs which can be hundreds or thousands of pounds,” she said.
“Many employees would not be able to afford that and many employers would not be in a position to cover the cost. Most companies will already have their change cycle mapped well into 2017, particularly for payroll year end, so these implementation timescales will be incredibly difficult to accommodate.
“The change as proposed would trigger considerable review of benefits packages and consideration of alternatives and/or closure of schemes. That requires considerable internal engagement with interested parties across different functional areas, as well as employee groups and potentially unions/work councils.
“Employers would need to re-evaluate their schemes and provide detailed calculations to employees.”