Car benefit schemes to retain value but tax compliance to cause challenges
Car salary sacrifice schemes and cash or car programmes will continue to have a key role to play within wide-ranging employee benefit packages but policy compliance with new rules will be “a real challenge”.
So said industry experts speaking at the ICFM’s inaugural Masterclass, adding that imminent HMRC changes will also hit low-CO2 vehicle take-up, impacting on the Government’s agenda aimed at improving air quality.
Held on Wednesday 22 March at the RAC’s West Midlands operations control centre, the event saw Alison Argall – business development director sales at Tusker, Claire Evans – head of fleet consultancy at Zenith, and Dan Rees – associate director, Deloitte Car and Mobility Consulting, review the changes announced to both salary sacrifice and cash or car schemes in the Autumn Statement and confirmed in the Finance Bill last week.
The experts told Masterclass delegates that the changes are not “the end of the world” and said that salary sacrifice and cash or car schemes remain of importance to fleets but did warn that compliance is going to be a real challenge.
Essentially the new rules mean employees opting for a salary sacrifice arrangement or taking a company car in lieu of a cash alternative will pay tax on the higher of the existing company car benefit value and the salary sacrificed or cash allowance given up. However, car arrangements in place before 6 April 2017 will be protected until April 2021 and ultra-low emission vehicles (ULEVs) – currently those with CO2 emissions of 75g/km or less – are exempt from the regulation.
With the changes to what are known as Optional Remuneration Arrangements (OpRA) being introduced so rapidly, a key topic at the event was the need to get processes in place to track employees with the relevant parameters to facilitate correct benefit reporting.
The event also highlighted that analysis of the cars most affected by the salary sacrifice rule changes were low-emission, low-value cars above 75g/km.
However, the speakers added that there is still a large choice of cars that are unaffected and employees can still enjoy financial and other benefits associated with salary sacrifice arrangements. Speakers also highlighted the growing popularity of car salary sacrifice schemes as part of employee benefits and their advantages when it comes staff recruitment.
The Masterclass also looked at claims that the popularity of low-emission cars above 75g/km chosen by employees opting for a company car in lieu of a cash allowance could be reduced following introduction of the new rules.
Employees choosing a company car instead of a cash allowance have historically been attracted by the low BiK tax for those cars versus the cost of having to fund a car privately out of the post-tax cash allowance.
Deloitte’s Dan Rees said: “In many cases I have seen the cash allowance available to employees is either low or commensurate with the taxable value of the vehicle chosen so the new rules do not have a significant affect. However, I have also seen examples of high cash allowance policies, where the new rules would mean that the incentive to choose low-emission cars above 75g/km is either gone or is significantly reduced.
“Drivers might either choose a ULEV, which is exempt from OpRA, or select the car they would most like to drive based on how the BiK tax compares to the cash option.”
He suggested that could give rise to employees potentially “changing their behaviour” and opting for higher-emission cars, which would also deliver an increased Class 1A National Insurance charge for employers and therefore higher whole-life costs, particularly when considering reduced fuel efficiency.
But Rees added: “OpRA will have the greatest impact in 2017/18 because BiK tax on cars is lower than it will be in 2018/19 and 2019/20. As BiK tax rates increase the financial impact from the new rules diminishes. In addition, as only a proportion of employees will be entering new arrangements in 2017/18, the true impact of OpRA is not a great as it could otherwise be.”
Looking to the future, Rees suggested that many employers were now considering their policies, for example whether to offer car, cash, or continue to offer both and for which populations. It would actually be possible, albeit an intensive exercise, to remove the choice of cash on an individual employee basis if that person agreed that they would never choose it.
The ICFM also added its view that a balanced approach to vehicle funding is critical but firms should immediately carry out a detailed analysis of fleet funding and the option to include, exclude or abandon a car salary sacrifice.
ICFM director Peter Eldridge said: “Every employer must look at the merits of car salary sacrifice and offering a car or cash option within the context of their own business and the marketplace in which they operate. It is clear that careful consideration is required, but make the right choices and both businesses and employees can benefit.”
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