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Chancellor announces changes to salary sacrifice

From April 2017, most salary sacrifice schemes will be subject to the same taxation as cash income, in a move set to raise an extra £85m in taxes during the 2017/18 tax year.

Toy car on pile of money

From April 2017, car salary sacrifice schemes will be subject to the same tax as cash income with the exception of ULEVs

It follows a consultation on changes to salary sacrifice held this autumn, with Chancellor Philip Hammond saying the move was designed “to promote fairness and broaden the tax base”.

Despite pleas from the fleet industry, the changes will apply to cars, however ultra-low emission vehicles will be exempted along with pensions, pensions advice and cycle to work schemes. The move is set to bring the Treasury an extra £235m per year in the 2018/19, 2019/20 and 2020/21 financial years.

The Treasury added that all arrangements in place before April 2017 will be protected for up to a year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to four years.

Colin Tourick, ‎Professor of Automotive Management, University of Buckingham Business School, said: “There will be a general sense of shock in the industry that the chancellor has changed the arrangements for taxing salary sacrifice schemes. You can see why he has done it: he expects to raise more than £230m pa once the new system has bedded in in 2018-19.

“However, all is by no means lost for the fleet industry and for those employees who have salary sacrifice cars or planned to have them.

 “People already sacrificing salary will continue to enjoy the benefits for four years.

“We can expect a huge rush in sal sac registrations between now and 5 April, when the new rules come into force.

“And employees can continue to enjoy the benefits of sal sac if they choose an ultra-low emission car, which is no great hardship as there is now a good selection of sub-75g/km cars on the market, with more to come soon.

“All in all, whilst this is not the outcome the industry was hoping for it’s by no means a disaster.”

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Natalie Middleton

Natalie has worked as a fleet journalist for 16 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day. As Business Editor, Natalie ensures the group websites and newsletters are updated with the latest news.